I tried sharpening the inside with a round file and it worked ok, but sharpening the inside makes the initial O.D of the 'plug' bigger. The deeper you go in the product the tighter the plug gets. This probably isnt as much an issue in a flexible foam but somthing less flexible gets compressed, the deeper you go, the harder it is to push thru.
Balsa floats like cork, but will eventually absorb some water if not sealed. I seal with epoxy before painting.