The connector that comes with the hub is the connector you must use, so there isn't much sense in worrying about it. As the above poster mentioned, it would be wise to use dielectric grease in the connector. You neither need to, nor should, pack it full. Just in the circular protrusions through which the wires pass (these may already be filled, as they are on Shimano hubs). Dielectric grease can be bought in small sachets from auto parts stores, or begged from a friendly [car] mechanic. You would require unusually high-quality shrink wrap to seal the connector/wire junction, due to its size. Stuff that shrinks a lot is not cheap, but you can 'build up' the strands with shrink wrap if you are patient/don't mind the slightly chunky look. Unless you're planning on submerging the bike (why?), the dielectric grease is sufficient in practice.

If you were electronically (mechanically?) inclined, you could theoretically chop the spades off of the Cyo, and replace them with better connectors, but I find well applied shrink wrap works fine to keep moisture out. If you are unconcerned about removing the light easily, you can even place the shrink completely over the spade junction, locking it in place. Mind you, this only applies to the taillight, as you are going to remove, if present, the spades that are attached for 'traditional' hub mounting, in lieu of the SP/Shimano/Sanyo system.

I leave quite a bit of slack/extra wiring in my system, as it allows for re-cutting the ends in the future, or for the unexpected, ie: the light mount breaking away. It is always prudent to leave slack in the system, as with cabling on a bike. I spiral wrap the excess, as with a wired cyclo-computer, but usually only on the fork. The taillight wiring is easily replaced, so I do not use much more than I need, perhaps 1-2" of slack. You can neatly pierce a small hole behind the seatstay brace for the fender, and feed the taillight wire through there. A rubber grommet may be used, if desired. Bike shops may have spare Di2 grommets about, which fit dynamo wiring nicely. Again, as above, you may lay the wiring inside the fender, and tape over it with alumininum tape, if your fenders have no provisions for mounting the wiring. If putting the wiring near the tire makes you nervous, you may run it along the edge of the fender, taped over.

That said, if you have a rack, consider using a rack-mount light, as it greatly simplifies [clean] installation...