Hi, thanks for all your responses, I just realized they were going to a different email. Re: under counter disc lighting - the sites say they are not rated for ceilings, etc. Are there safety issues with using them that way? Any recessed lighting I see uses housings that are 6" wide. We have architectural solid soffits that are 6" wide now. If I were to place a recessed housing right next to it, this would extend the existing & recessed housing space out to 12". The problem here is that the light itself, centered in the added on housing, would be spaced at 9" from the window in a 12" soffit. So, to get the right look, I would have to build out the soffit to 18" to make the light centered. The structural soffit is 9" deep from the ceiling height and I think to look right, I would match that. So now the soffits would be 9" deep x 18" wide in from the window surface - hence large. The only recessed solution I can imagine would involve a thinner housing than 6".

ISTM that there are two issues at work here. The first is that you are smelling unburnt gas in the house. Someone needs to find out why. Is there a leaky connection leading up to the dryer or is there an internal failure that's allowing unburnt gas to escape? Or, maybe, there's an insignificant amount of gas released when the dryer heater lights off. I'd expect the utility tech to determine which, though I wouldn't expect him to be able to do much about an internal failure other than advise you to call an appliance repair service. Secondly, and the one the utility company keyed on, there's a maximum allowable back-pressure for exhaust from the dryer (.4" WC or more, depending on total duct length) in order to keep exhaust gasses from remaining in the house. I doubt the technician measured it, but rather made an assumption based on the apparent design.

Racer- In regards to the mice. I have seen mice build nests from shredded material. I could imagine a clump of this material in the soffit next to the light, which may cause a fire? Am I being paranoid?

I think you may be defining "space ship takeoff" when you see a stark cone of light on the wall (rather than being diffused or continuous) like these examples: That is a function of a short eave, where the overhang is only say 12" forcing the light fixture to be too close to the wall. You will probably have this scenario. If you are however referring to an LED "disc" that is flush with no recess on the trim, that is a function of the fixture chosen.