Ethernet cabling is low voltage and installation has few requirements compared to regular electric (120V, 240V, etc.) wiring.
1 - What is the best way to do this that has minimal effect on insulation? I would prefer if this did not cause a stream of cold air to flood into the house.
I generally just drill a hole. I have a really long drill bit (I think 1/2" but not sure at the moment) for this purpose. Just make sure you know that it is a "safe" area - away from any electric wiring, plumbing, etc. and drill a hole. If you have any problem with air coming through, you can use foam (like Great Stuff) to fill the hole after you have the cabling done.
2 - Do I need to be concerned with various housing codes restricting how I am allowed to wire this?
There probably are some codes in some places. But generally I have not heard of many code issues with low-voltage wiring. It simply doesn't have the same safety issues that you have with regular A/C wiring.
3 - Is there a safety concern with regards to the jack coming in contact with thermal insulation?
Not that I know of. But there are 4 ways of doing this, and only one would have the jack in contact with insulation:
- Wall jack installed in box eliminator in insulated wall - then you have contact between insulation and jack.
- Surface mount jack (any wall) - cable goes through wall but jack is entirely inside the room.
- Wall jack installed in box eliminator in interior wall - i.e., run cable through a hole and then route it along the baseboard or through the ceiling or whatever, terminating with a jack installed in a non-insulated wall.
- Wall jack installed in a real box. The jack is in the box so not in contact with insulation.
I usually use a box eliminator and don't worry about the insulation, but I have done all of the above at times, depending on the specific situation. Of course, all except a surface mount jack will require cutting a good size rectangle in the inside wall, but it will be covered with the jack/wall plate. If you are working with paneling or something else stronger than drywall, surface mount may be easier.
4 - How do I minimize damage to the exterior clapboard? Is this even possible?
A small hole is really no big deal. The phone company & cable company do the same thing all the time. I find it is least obvious if the hole is a few inches from the ground, but sometimes it has to be higher up to match a reasonable location on the inside wall. The hole should not cause any problems. As noted by HazardousGlitch, the side you drill from will have the cleanest hole. So, all else being equal, drilling from the outside makes sense if you will be installing a jack (wall jack or surface mount) right where the cable comes. If you will be routing that cable to elsewhere then I would generally drill from the inside to keep the inside hole clean and so that you can position it very precisely (e.g., right above the baseboard). Most people tend to care more about the inside of the room than the outside of the house.