I use 1 gauge (2 is also acceptable) for both positive and negative. You're putting way too much starting amperage through your cables, and I wouldn't be surprised if that wasn't a contributing factor in the melt-down, aside from moisture penetration or a poor ground source. Ensure your ground is to the frame, not the sheet-metal in the trunk.
If you're never planning on racing, you don't need to worry about an external shutoff switch which is required for the track tech inspection if you relocate. You should under all circumstances with a trunk mount, have a sealed battery box with vent tube, and this is how I ran my power lines:
run the positive (red) cable through a corregated loom cover under the trunk carpet, under the back seat, under the floor carpet, and out through the front firewall, and put a grommet around it at any point it passes through sheet-metal. Make sure it's not going to be pinched anywhere so your insulation doesn't get rubbed through and short out. Attach this to the starter where the primary battery positive used to go. keep the original battery wire attached as well, we're going to use it later. This way you still get continuity between the battery through the starter, and on to the original power supply wire to the fuse box.
Run the ground cable out the battery box in the trunk, drill a hole through the bottom of the trunk and again a rubber grommet at the sheet metal, and underneath to bolt on to the frame. I used the metal bumper mount bracket to the frame for a point to torque it down to for a solid ground.
Now back to the original battery wire. The terminal that used to connect the battery to the starter, and the primary power source to the fuse box, run a nut/bolt/lockwasher assembly through the two parts inside the insulator, and cover it with something with insulating properties, and secure it where it won't rub through on metal anywhere.
Haven't had any starting, charging or shorting problems.
It also has a clean install appearance if done correctly:
