You need to get the rotten wood out of there or you will just end up with another hole in the tree. You should be able to scrape out the rotten stuff with a sharp knife.
That was my gut instinct. I cleared as much of the rot away as I could, but once I got to that hole I couldn't go any further without taking fairly large chunks of the live wood out first. I'm not sure if the rot extends all the way to the roots or not, so I don't know if it would even be a good idea to continue cleaning that rotted section.
The rot will stop somewhere esp if no new water is supplied to it. Do remove all and any punky wood as much as you can before doing this (don't go past fresh wood), the tree will heal. As Brian mentioned, Kathy fills voids with putty all the time and let the new growth roll over it. She encourages growth by "cleaning" the rolling tissue every now and then....just taking off the bark to the green to urge it more. I haven't seen her do the towel trick but it is in line with something I've read about covering it with Sphagnum moss (same idea just different material).
BTW, please do not do your worst case scenario virt...you will destroy a wonderful tree.
Good luck!
Thank you for the reassurance, Dario. I agree, the virt is probably a tad bit much.
Is there any particular type of putty I should get, or just standard wood putty? Can you give me a link? ;-D
Okay, so the current plan of action is to fill the hole, use the towel/raffia technique, and wait it out. Thanks everyone for your help!
Despite the rot situation, I still love this tree. The front doesn't show any of the affected section, so at least it's got that going for it.
Brian, any links you can find about Kathy's techniques would be greatly appreciated. =)