I would go with a 2" bore, a new catalyst converter (make sure it's CA legal, some shops won't change it if there isn't anything wrong with the one you have. A hammer will fix this), and whatever tip you like. I would try the cherry bomb muffler available at most Autozones which is about standard size and won't sound like a pissed off weed eater. Cost here if you all ready have the muffler and converter is $140 at Mr Muffler.
I would put on a aftermarket intake, 2" bore exhaust, and do a full synthetic oil change. Should give you around 10-18 more HP. Look into getting custom cams built and a programmable ECU to really take advantage of the bigger intake/exhaust. Might as well port and polish the head while it's off, switch to higher compression pistons, and get a custom head gasket made of metal to further push your HP and torque up.
Good luck,
Rock