Thermocouple wire length should not make a big difference- a good connection is wayy more important (thermocouples generate a millivolt signal proportional to temperature.
At my power plant, we have lots of them that are over 100' away from the 'meter'- I'm surprised that the manuf. would say that.
Thermocouple - Wikipedia, the free encyclopedia
a type K has enough range for an EGT. But 200F seems kinda low for exhaust temps on a machine that has run for more than 5 minutes.
You need to connect the red wire and the yellow wire to the meter- if it seems off or doesnt read at all try reversing the polarity.
The 'bare' wire is probably a ground or earth. First, try it with the bare wire disconnected, then if the reading is still off, land the bare wire on a grounding screw on the meter and see if that makes it more realistic. I'd expect numbers like you see posted here for EGT's (800-1200F). Its possible that they expect either the red lead or the yellow lead to be grounded (depends on the meter) but I'd try it ungrounded first.
They dont want you cutting the wires becuase it potentially makes a "cold junction" - I wouldn't worry about that, just make sure that the connections are as clean as possible (crimps vary a lot, I like screw terminals (look at Radio shack for a "Barrier Strip") or soldered connections.
(and yes, I am an Electrical Engineer, but that doesn't mean I know how to actually wire things together, ask any Electrician
-John