There's supposed to be an exhaust extension that is between the mid and lower sections of the outboard. Clamps are supposed to hold the wire in place. Seems like a debate for O2 sensors screwed into exhaust manifolds and heat with cars though. Not certain if water pressure from the impeller should really be flooding anything if a thermostat isn't allowing water through.
Wires for exhaust sensors on automobiles are maybe a couple inches away from direct contact with the exhaust.
In the Hydro-Electrics the wires were routed in Midsection in a water filled chamber, that isolated the Exhaust tube(carrying the hot dry exhaust gases) from the midsection housing. The water in this area was always being replaced, so it didn't get too hot.
In the older(1962 - 1968 Electric Shifts, with the exception of the 1968 55hp) the shift wires were indeed routed into the exhaust tube and exposed to the exhaust gases as well as steam. In those engines cooling water was dumped into the exhaust as it left the engine block. If the water pump failed, the wires were, as F_R said "cremated"
Wires for O2 sensors on cars/trucks are never anywhere near direct contact with the exhaust, unless there is leak impinging on them
