Peter,
I feel your pain. After I paid $36 for a stock air filter I decided to toss the whole setup for the federal version. This may be a hard swap for you as you are in CA and I am in PA. A donor 300SD was pretty easy to find with the federal emmissions. Follow the link at the end and you will see what I did to my car. It was well worth it. Response was quicker it is a bit faster now also. I used a knockoff K&N and I have had no trouble with it. I was afraid it was going to be too loud but it is perfect. A barely audible whistle from the turbo sounds awesome. I absolutely believe the car is more responsive because of this filter. The turbo seems to wind up a bit quicker. Others on this forum will swear up and down and stomp their feet and tell you it is impossible, hogwash.
You should be able to rid yourself of that air canister and fix some kind of filter to suit you.
Oil Burner,
You can purchase a foam sleeve to fit over your K&N to absorb the oil and just pull it off to clean.
http://www.peachparts.com/shopforum/showthread.php?threadid=90424