mykdee, you really only need 2 gauge wire from your house battery to your inverter (positive and negative). This is necessary to get as much juice as is needed when called upon (especially important if you run a large appliance like a microwave or something similar). I only have about 4 ft. of 2 gauge, I did the long run from my van battery/isolator to the back left corner with 6 gauge I think, and it works fine. It's just charging the house batteries when the van is running, so it doesn't need to be huge gauge, but it does need to be fused.
I think most folks mount their isolators under the hood, since there is really nowhere else for them. I did, it's pretty dry there, but not necessarily cool. Anyway, it works fine.
Your idea for a power distribution block sounds pretty nifty. What inverter are you using? You need some space around it regardless for the fan and heat sinks to keep it cool. It can be in a box as long as it has some space around it.
There are a couple of pictures, though not very good ones, in my build thread below. Not exactly as high tech as some of the SMBs on here, but it works for me.