RTStork, funny, that's the same exact thing I did with mine, right down to measuring the filter's extension into the lower box. The only other step I took was to sand the newly cut edges for a factory look.
Al, I 'aint no skientist, but I guts a test for ya. Yo, Alec, you betta pay attention to this too...
If you read the various tests, K&N and the rest swear that their filters clean as thoroughly as a paper filter, but do so more efficiently. Tell me something, does that make sense? In order for air to flow more freely, there have to be either more and/or larger passages for air to pass. This must mean that the possibility for dust, etc to pass through must be greater in the free flowing filters. I did find a scientific study that alluded to this also, but I don't remember where it is, so I can't refer you there. I also had this very same discussion with a buddy of mine who also has an X with a K&N filter. I couldn't refer him to the test I found either, so we did our own.
His X is a 96 with a conical filter set up, and mine is an '01 with the panel filter. Unfortunately I don't have a K&N filter so I used the factory airbox from my '88 Mustang 5.0 which does have a K&N and is similar to my X's.
What we did was remove he air boxes from the MAS sensors and installed paper filters in each. To the MAS end of the box we installed a shop vac with duct (that's duct not duck!) tape between the vac hose and air box. This way the sticky side would catch any pass through. We also put a wide and heavy strip of rubber cement on the inside of the air box after the filter which was also planned to catch any by-pass through the filters. Next grabbed a large box, one big enough to hold the air boxes and we put about a cup and 1/2 each of sand, sugar, pepper and baby powder (hey, you use what ya got) to represent the various sizes and consistencies of the debris your X might encounter on the road. Next we put the air boxes in the box, turned on the vaccuum and shook things up. What do you think we found?
The duct tape caught nothing in either case, which I assume is because the glue is not tacky to the touch. The rubber cement, on the other hand told a better story. The strip behind the paper filters was very clean, with only traces of baby powder. The K&Ns, on the other hand showed much more baby powder as well as traces of salt, sand and sugar, well at this point we couldn't tell the difference between the sugar and salt, but there was some on the rubber cement strip nonetheless. Now, there wasn't a lot, but there was some. Take from this what you will, but it was enough to satisfy me that there is pass-through. For your own test, hold the K&N up to the sun and tell me what you see. I noticed pinpoints of light.
There is no denying the power advantages of the K&N filters, but the power comes at a price. Alec didn't notice any junk in his flow pipe, but maybe thats because it was inhaled into his cylinders. Matter of fact, if you do a search on this topic you will find someone who said the exact opposite and puts his stock box in when he goes offroad.
As far as over-oiling the K&N to prevent pass-through, well, some of that oil gets sucked in and becomes a deposit on the MAS and changes the sensor readings. There have been plenty of posts on that also.