Seems that some don't go for the auxiliary-battery-under-the-seat on
older diesel westies, but rather put the second battery next to the
original battery in the engine compartment.

This would certainly ease getting everything that's NOT on the starter
over to the auxiliary battery. Just put the red wires on the aux.
battery, run the main cable only to the starter. Use a deep cycle
battery (they won't fit under the seat without cutting metal).

What should I use to isolate the batteries? A diode? Any
recommendations?

Thanks,

Jim