Wattage is a function of voltage, yes. But it's not linear. Wattage varies with the square of the voltage, so if you take a 3500 W @ 240 V heater and run it at 120 V, the wattage will be only 875 W.
I have no experience with a direct contact system like a traditional RIMS. I suppose as long as the flow rate is good, the risk of scorching would be minimal, but if you stick your mash recirculation and the flow slows down a lot or stops, hello scorched wort. I might be over-reacting, there are a lot of folks with systems like this. It's just that during my planning for my brewery, this approach didn't sit well with me.
By suggesting stainless steel, I was only thinking that the parts might be easier to find. But again, I don't have any experience putting together a system like this. Which ever way you go, avoid plastic and plain carbon steel. Stick with stainless, copper, or maybe even aluminum.
Since you are in the planning stages and haven't bought anything yet, be very open to new ideas. Draw lots of pictures, make lots of lists, and really think about how you like to brew and what you really want out of your system. Don't buy anything until you have settled on a concept. This will save you money and effort.
Check out my website and read through it and you will get a feel for the kinds of things you might want to consider when designing and building.
Prosit!