MLT Headspace

During my all grain brew yesterday I realized that I had quite a bit of space between the lid of the MLT and the grain, I'm calling this head space. I measured that area to be about 10 inches and during the 90 minute mash lost a few degrees and am curious if this space could be the reason. In the future I'm planning on making a lid out of styrofoam wrapped in aluminum foil to cover the grain to see if this will hold the temperature better.

1. Am I on the right track thinking that this space should be minimized in order to control the internal temperature of the MLT better?

2. Does the make shift lid I described above sound like a reasonable solution?

Yes, and Yes. You want to have a nice balance of allowing a larger grain-bill and also not having so much "head space" in the tun. It is better to have a larger MT and be able to add insulation to make it "smaller" if need be (via an add-on insulated lid), but in your case you are right on. The less air the mash has to heat the better.