Thanks for all the suggestions so far. To answer a few questions:
I was told by shredder (when I bought his surplus telescopes the other day

) that a
hot knife or an electric carving knife will cut this stuff. A hot knife certainly does but it's
too difficult to control the temperature. Don't have an electric carving knife to try.
I had some nichrome wire so made up a quick and dirty hot cutter. This works well but
needs some voltage control to regulate the temperature other wise the cut is irregular.
The cutter that Clark Rubber use has a blade like a fine hacksaw. I tried a hacksaw but
it left marks, a suitable blade in a reciprocating saw might do the job. (perhaps a jig saw?)
A hole saw leaves a jagged hole no matter what speed you use, .a forstner bit in a drill
press was also a failure
I didn't think to try a Dremel so that's something else for tomorrow.
[Update: Just tried the Dremel with small grinder disk. It gives a really clean cut]
I think the hot cutter is the go but I can't see how to cut holes for eyepieces. The nichrome
wire is too thin to hold a shape. Once I get hold of a better power supply, I'll try some stainless steel
wire as suggested on one web site.
[The high density foam sold by Clark Rubber (as camera foam) is more like sponge rubber
than polystyrene foam. It's available in 25, 50 and 100mm thicknesses.
Price for the 25mm was around $8 for a 300mm x 300mm piece cut, not sure if you save
much just buying a larger sheet uncut.]