I've considered that too. I'd take a square of durarock and cut a circle in it with JUST enough diameter to fit the bottom of the keggle with no gap. Then, give yourself about 6" up from that, and the leaping flames and fumes should be dampened enough to protect your insulation.
I still think that if you keep the burner on low, (you should be anyway) the flames licking the side are irrelevant. The question is, is the heat from a burner on low enough to actually melt the reflectix? AND, if you move the lining up about 6-8 inches to prevent burning, do you really lose that much insulating effect (especially with the burner periodically adding back heat)?
Has anyone got any experience? FWIW, they make jackets for bullet type smokers that go right over the grill and actually touch very near where the coals sit.