I have a hole in the pipe, right in front of my cat. (Still on same unit piece as the cat)

Can a muffler shop replace my cat with just a piece of straight pipe?

A reputable shop won't replace the Catylitic Converter with a straight pipe because it will violate clean air laws. I did a Google search for replacing CAT with straight pipe, and the first articles I came up with were for a muffler shop that got tied up in a lawsuit because an employee did this, which made the car pollute too much. Also, your vehicle will probably fail emissions tests without a catylitic converter. I'd say it can physically be done, but from a clean air (and regulatory) standpoint the Cat is required.

Thanks. I called 4 places and they basically said the same thing. New Cats cost over $200 installed. Ugh!

One thing I'm curious of is that they said our Jeeps have an O2 sensor after the Cat, and without the cat, the exhaust temp would read the same as the front O2 sensor, which would send a weird signal to the computer... and the car wouldn't run right...

Does that sound correct for my Jeep, or was that just a line so I'd give them another $200?

I thought about the Oxygen sensor, and they're probably right (sensors can get kind of picky). The Cat itself can be as cheap as about $100. I'd say $200 is reasonable with labor. You might save a few bucks by shopping around, or if your time isn't worth anything, you could tackle it yourself, although you might have to fuss around with getting all the old & new pipes to fit together just right (a muffler shop would have all the fittings, expanders, couplings, etc. in stock).
Let us know what you do. I almost replaced mine once, but then I decided I'd wait until the engine showed signs of trouble (like a "Check Engine" light coming on) before I went through the cost and effort (I'm kind of cheap that way). That was about 6 months ago and it's been fine so far.