Go ahead and insulate the ductwork with foil-faced insulation. The foil is installed facing OUTWARDS. Yes, the 1/2" rolled type is good. FIRST, however, you want to seal up any cracks and holes. You can run the fan and feel around any seams for air leaks. Use a combination of Foil Tape (NOT Duct Tape PLEASE) on the seams. (It's sold in the Home Centers. Just ask for Foil Tape for HVAC.) Use the same tape to 'start' and 'terminate' your 1/2" insulation rolls. Be GENEROUS because you may get only one shot at doing this job.
RE: Wrapping the HVAC unit - Contact the MFGR. first. They may not necessarily 'approve' of such a measure. Not wrapping the unit is probably the way it keeps 'cool'. If you wrap it, it may work harder than it should. As for the HWH, I don't know of an upright unit that can't be wrapped but, in the name of being safe, I'd check with its MFGR. too.
My best to ya and hope this helps.
Jay J -Moderator
PS: There isn't any 'pollution' issue when it comes to the 1/2" fiberglass insulation. YOu want to wear long clothes and a mask (or a respirator that's RATED for fiberglass material), and gloves, when you do this job ...