Hi guys,
There's no danger of a short circuit that could damage a PS2 board. What you saw was pure fiction, stated by someone who heard it from someone else.
Unfortunately, the e-bay comment is correct, there is a danger of a degrading speaker causing a short. It's a known problem that is covered in the MTH technician training course. When the chrome flakes off the magnet it will occasionally find the speaker power leads placing a dead short across the speaker circuit. This takes out the audio amplifier pretty quick. Fortunately, the audio amp is a relatively easy component to replace, so the board can often be repaired. The amps are available to authorized service centers.
I salvaged a speaker from a DOA Williams Tru Blast 2 horn which is 8 ohm 5w, would that work in the MTH Proto 2 with 9 Volt battery system replacing a 16 ohm 5w speaker without damaging the engine?
No. An 8Ω speaker will also damage the audio amp. You can safely replace a speaker with a higher ohm value speaker, but lower ohm will try to draw too much current. If you had room for two speakers you could use two 8Ω speakers in series. The two together would equal 16Ω total.