Fast flowing fuel can easily generate 30,000 volts (material dependent). A spark jumps through the hose to a ground making pin holes, so it is pretty high and can develop in a few inches.
What might be the insulation break down point?
Certainly a lot less than that
If it's going to go through the insulation it will be at the light source (LED) or light sensor (usually a photo transistor) and the insulation would be relatively thin here.
However in order to get that kind of voltage you would need a significant amount of fetch over a large conductive but otherwise isolated surface. Difficult to see how that could happen in a small aircraft.
You could help it along of course - let's assume you have a fairly long piece of metal fuel pipe which happens to be completely isolated. It so happens it is nicely aligned with copious amounts of dry air flowing over it via some duct (quite conceivable, nice flying day in low humidity conditions).
We have nice, uncontaminated avgas flowing through the pipe which changes into a nonconductive pipe (say rubber or similar) and then that happens to go to the Redcube and the body is not grounded but of course the internal electronics is via the power supply.
So in this case we have the perfect storm - charge gets supplied by the airflow, the fuel transfers it to the Redcube - the housing is in contact with the fuel so it collects the charge (bring your finger near it and you will get zapped). So now it is just a matter of enough voltage to overcome the isolation barrier and we will get a nice spark discharge and most likely a damaged Redcube.
It is certainly a possibility but the builder will have made a few mistakes to get to this point. If he simply ensures that no metal part, whatever it is, is electrically isolated - this cannot happen.
Typically, discharges in the engine bay happen in my experience around oil and coolant radiators - often these are mounted using lord mounts or similar arrangements - that's why you often see a copper strap around one of them. Leave that off and interesting things can happen.
I have never witnessed a case where a fuel line or fuel system part was involved - but it is not impossible, you are quite right.
Rainier
CEO MGL Avionics