Interesting subject. First of all, I have had cats go bad on a number of cars. Most times, the cat has broken up inside and not allowed a good clean flow of exhaust. I don't know for sure what causes them to break, but they will seperate and then a chunk will wiggle around inside with the exhaust pressure. This has resulted in poor performance, poor fuel economy, higher engine temp, strange rattles under the car, and many other things.
Inspection or not, it is a federal emissions device with a fine of up to either $5k or $10k. You don't want to get caught breaking the law.
With that said, here are the ups and downs of removing them.
Car Craft did a great article last year where they dyno tested with and without on a early 90s Z28. The car made a few more foot pounds of torque with the cat and just a few less ponies. In fact, so fewer ponies that it just did not justify pulling it off.
Sound wise, you won't believe how wicked that 86 will sound with stock mufflers and hollow cats. Not that I would know. I actually have a friend that has been through a few C4s over the years and every one of them got the following treatment.
The early production 86 models have a bolt on and off center cat. It can be removed in about 10 minutes after jacking the car with a few hand tools and good penetrating oil. It does not take long to run an arbor bit or long chisel in and out of the cat to verify it was bad. Now, when you perform this procedure (hammering, jabbing, cutting, stabbing of the cat) you will render it useless. The new models only bolt at the rear of the cat. They slip and clamp at the front. These are tough to remove, so simply dropping the rear Y pipe, leaving the cat in place, and going to work on it from underneath can accomplish the same goal.
If it is a real early 86 it may not have the pre cats right next to the engine. If it does, these are a little more tricky to verify if they are working. You would actually have to cut the heat shield off, cut the cat open, poke and prod (to make sure everything is still in there) then vacuum out the remains. Welding it back closed and tacking the heat shield completes the job.
Now, you have what appears to be a stock exhaust--but is it?
What makes the exhaust sound so exotic is the large cross over chamber of the big hollow cat in the middle. Especially if you have a stick shift and flowmasters out back. However, I have heard most people with this kind of arrangement get very tired of the engine noise after a while. There is something about the C4 design that will make that open exhaust muffler noise just echo inside the car at in town traffic and highway speeds.
On the safe side, go with an aftermarket CAT if it is time to replace them, and don't take a chance getting busted.
BTW, back when I had my 85, I hollowed out the cat. At that time we were trophy class drag racing about every other weekend. I bought a new CAT for daily street use. After a couple of times doing it, I was able to swap out the hollow for the real CAT in about 5 minutes. I also had emission testing back then as well. One time I got lazy and did not swap the Cat back out for months. (kinda liked the sound anyway). My birthday rolled around and I had to get it tested. For giggles and grins I left the hollow Cat in place and tested. I made sure the engine was up to temp, hight test fuel, and a bottle of emission cure in the tank. It passed with flying colors. That was also with a Strip Chip in the computer that adverstised not being legal for emission equiped vehicles.
Pretty cool, huh? Then, I could not get my CJ-7 to pass to save my life. It was bone stock! Maybe the machine was broke. :confused