Judgimng from where I live it sounds like the inspector wants a B-vent instaled this usually requires one inch clearance from combustble materials . What exactly did the inspector tell you to do and use ? 800.00 dollars for a double wall flue sounds very reasonable without knowing the amount of elbows and lengths of run. if you told me it was 2 feet with no elbows I would expect it to be 400.00 dollars.