All good advice! Especially about toxic fumes from plastics!!!
I think my appraoch would be to rough cut the areas you want to open, then come in with the heat gun to refine it.
Less fumes is a good idea, even outside.
One big advantage to the insulation foam is that if you use other hand tools, such as: rasps, files, sand papers, planes, you can achieve great natural looking effects that paint up to rough rock-like structures. I even use pliers and scissors to pinch and bite the surface to create pockets. The key is to not over think it. Spontaneously quick work is key to making it look natural. I have even used the rocks and sticks to scratch the surface... no need to by tools if you don't have the money
I've never really seen the need to melt or use heat to work with the insulation foam because it is much denser than styrofoam. It holds a knife edge very well, and you can cut and snap it if its' thicker than your blade. Why go to the expense and possible toxic release if you don't have to.
Whichever way you chose, good luck!
GOR