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I'd say it's possible/likely the damage occurred during the recent exhaust work, but the cause was the age of the pipe. It was going to happen whether you took it to that shop or any other or not at all.
You don't need a new cat though. Take it to a good welder and they'll fix it right up. You can save yourself a bundle of labour costs if you take the pipe out yourself and take it to them. They won't be able to mend it while it's still on the car.
Don't take it to a "muffler shop" unless you really have to. Find someone who's sign says "welding" on it.
PS - the same thing happened to mine a few months ago:
http://www.brickboard.com/AWD/index.htm?id=1377451&show_all=1
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1998 V70 AWD->FWD Turbo 200k+
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