It is a piece of baffling to direct air through the cooling fins on the cylinder. It is not melting, it is rubbing on the fins and has rubbed through in the bottom LH corner of the part there. It is not a safety or airworthiness issue yet, but if allowed to continue will probably result in the baffling cracking. What needs to happen is that piece of baffling needs to be removed, have a bead of RTV silicone run along the area where it contacts the cooling fins, and be reinstalled. RTV is great stuff, I use about 3 tubes of it for each engine install or top overhaul... seals up gaps in baffling and keeps parts from rubbing on eachother.
