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Exhaust in compartment isnt good.. Check your hoses and the big coupling hose to the muffler/waterbox.. Sounds like you have a leak somewhere in one of them.. Ive pretty much gone through everything short of adjusting my carbs and my XL700 is having nearly the same problems with the exception of the spark issue. The spark thing maybe its time to replace your 2 plugs wires..
:thumbsup:
 

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I'm not exactly sure... I haven't had to replace mine yet.. I have a pdf file service manual for the XL700 which I'm sure is pretty close to yours.. Motorwise probably very close to the same.. Mine is a 3 seater and a 1999, yours is only one year older. If you want send me your email and Ill email you the PDF file I have, and maybe it will help you..
 
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