It's the whole shebang. Basic thermodynamics. Suppose you did perfectly insulate... anything. Any system that is also generating and consuming power. That means

It's the whole shebang. Basic thermodynamics. Suppose you did perfectly insulate... anything. Any system that is also generating and consuming power. That means no energy is escaping. That means all energy being produced is turning into heat on the inside. That means the inside is going to become... unpleasant. In not necessarily all that large an amount of time on human time scales, let alone cosmological ones. A Dyson Sphere has to radiate. As ben_w said and I fully agree with, if you're going to hypothesize a level of technology that can somehow get around that, that's fine and all, but if you're going to invoke magic, you really haven't got any justification for stopping at such a particular place. They could be aliens that have figured out how to shunt energy into the 5th Dimension instead of radiating it out into our universe... but they might also just be elves casting magic spells. Intuitively, it may seem like there's a lot of difference between those two things, but... there really isn't so much.