I think you mean induction, not insulation.
No, it is quite possible that tvp means what he/she says. Perhaps they can clarify it.
Most transmission and distribution transformers are oil-insulated, and the oil is also used as a cooling medium (either by natural convection, or by being pumped through a radiator) though for high voltages (> 132kV), SF
6 gas insulation is an increasingly viable option. SF
6 (sulphur hexafluoride) is great stuff - its insulation resistance is about 5 times that of air, so you can put 132kV busbars 5cm apart from eachother 8) It's non-toxic and colourless, heavier than air. The downside is that it requires expert installation, therefore initial costs are quite high, and when you get an arc in it, it forms a fine white powder which is poisonous.
I know that house hold power is rated at 50-60 hertz, but why can't we jack that up to something like 500 Hz -60 so we can have smaller household transformers??? (like 10 times smaller)
This would cause big problems for AC motors. In order to maintain the shaft speeds, which we get at 50Hz (750, 1500, 3000 rpm), the motors would have to incorporate 10 times as many poles - eg, a 4 pole motor for 50Hz, would need 40 poles at 500Hz. So they would be much bulkier and more expensive. Also, the impedance of transmission lines would be increased at higher frequency (they are not just resistive, they have inductive and capacitive components too...).