I need to set this freezeless valve through a layer of bricks/mortar.
Should I set mortar directly around the pipe or should I leave some spacing and fill it with insulation foam (or something similar)? Or set a 1" pipe directly in masonry and put this valve pipe inside it with something to fill the gap.
My primary concerns are thermal insulation and preventing pipe breakage.
The point of a frost-free faucet is that it drains completely when not in use (the shutoff point is at the inner end of the assembly). Insulation should not be a concern, and probably won't accomplish much--copper is a very good conductor of heat, and the outside end is exposed to the elements regardless of any insulation on the pipe.
Follow the general guidelines of masonry with respect to plumbing and other penetrations.
