looks like you've already taken out the spark screen? I can't really see if the screen is in there. You have two options, grind the opening under the deflector which points up or creating a new hole. My vote would be for a new hole, something like what snellerized 201t's have.
With all the dings on that muffler I wonder if you use the plastic cover?
If you do use it then when you drill a new hole through the muffler, you will have to make a new exit by trimming away a section or two of the plastic. 5/8th's would be a safe choice, that would probably double your exhaust size, not sure exactly what size hole is under that deflector.
The next extremely important step is to modify the carb. There are plastic limiters over the adjustment screws, if you have adjusted the carb then you have probably realized there is a limit to the adjustment. A good thing to try out is to adjust the carb with the limiters on before modifying so you get a feel for adjustments without having to worry about over doing it.
The limiters fit over the splined carb adjustment screws and look like this:
What you want to do is remove the parts sticking out at the top, while leaving the rest intact. Removing them can be slightly tricking, analyze how they are stuck on, and most likely you can use a drywall screw to gently screw into the top and pull out. After the tabs at the top have been removed you can push the "limitlesslers" back on the splined carb adjusters to help get a screwdriver in for adjustment.
How familiar are you with adjusting carbs? I think I will stop here let me know if you are following or have questions.
If you are not familiar with adjusting the carb, my favorite explanation can be found here:
http://store.chainsawr.com/blogs/tu...djustment-and-tuning-of-a-chainsaw-carburetor
This is also a great place to find parts for saws, I have sent him emails with odd parts not listed and been amazed at how quickly he has found them. Great resource to have when looking for parts.