If the manifold is in otherwise good shape, that pipe is all you need to change out to mount your muffler.
It can be a bear to get out -- it's been subjected to water and cycles of heat and cold for a long time, so i likelyu stuck pretty good. It'll likely take some heat, some lubrication (both the chemical and the verbal varieties), but it will come out with patience and care.
I've gotten them out by clamping them in a vise, protected by blocks of wood between the body of the manifold and the vise jaws, and taking a pipe wrench to the pipe section. This is after all the heat and lubrication. I suppose you could do the same thing by laying it on the floor and holding it down with your foot while trying to wrench the pipe out. Only caution that comes to mind right off, with either method, is to do all the heating and lubing you can first, and go back for more if necessary. If that pipe is falling apart on you, it may not have enough meat left in it to take much wrenching. If it does crush/twist/break off on you, you can still use a small grinder and chisel to cut and pry away what's left.
As far as cleaning up the threads when you do get it apart, you can get a file to clean them up for a lot less than a chase or tap. 2" pipe thread is 11-1/2 threads per inch, so you need to buy a file that has that pitch. Most of them have two or four pitches on one file. What you want is one for internal threads that includes the 11-1/2 TPI. A good NAPA should have one hanging on a rack, but you may have to call a plumbing supply to find one. But we're talking something like $15-20 instead of $250, so that would be worth the effort.
Follow the link to McMaster-Carr and do a search on 2616A17 to see what the file looks like
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