I missed this thread back in January. I'd stay away from wood if you can.
I built a modular layout last Christmas. My structure was 100% XPS foamboard and some Great Stuff spray foam. I did use 2x4's and plywood for the tree stand itself but the layout was all foam. After Christmas, I covered the modules in cheap painter's plastic and put them up in my garage rafters. I plan to use it again this year.
Going back to AviatorRuss's original plan, I don't see why he couldn't carve it out of solid XPS. Those 4x8 sheets of XPS are pretty pricey though. I think the 2" variety are almost $40. If you need stack those to reach 2 feet, then it'll be expensive.
I would recommend using spray foam where possible. I used a method I learned from a forum member (ChrisA). You spray the foam and after it's done expanding but before it sets up, you cover it with white quilt batting and gently shape it. Then after it sets up hard, give it a coat of white paint (I also sprinkled some glitter on top of the wet paint). Here are a couple pictures of the building phase of mine and a completed shot:
This is two sections upside down:
Below is a picture of 4 sections (now right side up) and painted white (tunnels blacked out):
Below shows the wood tree stand and the gray tunnel entrances. The pink XPS areas are where the spray foam will be:
Below shows the spray foamed areas with quilt batting before white paint:
And finally, the completed layout:
