I had some worries about the location of the ESC and the batteries. There is a tradeoff to be made between potential heat damage, water damage and induction damage. After asking around on rcgroups.com (see link in column to the left) I have come to the conclusion that I am simply worrying too much.

The solution is simple: put the batteries and the ESCs in the fuselage, and use sufficiently long motor leads.

There seem to be a lot of people that do it like this, thus why worry until it is really a problem? Just fly the thing, and check the temperature after landing.

Of course using a good battery (low internal resistance) and some ESCs that are over dimensioned should help in preventing heat problems.