I think baking would work to kill any bugs that may be in the mulch. However, it would also totally dry out the mulch, but one of the advantages of cypress is the moisture it holds. You could just re-wet it. Boiling probably does a better job of sterilizing the mulch, but totally sterile isn't necessary, unless you are planning on doing surgery, or maybe for egg tubs. The downside of boiling is of course the opposite of baking; instead of too dry you end up with too wet. You could also just treat your enclosure with Provent-a-mite each time you add new mulch. Whichever method works for you should be fine.
I am pretty sure you are in no danger of your kitchen catching on fire. I looked it up once (before giving a piece of drift wood the oven treatment) and if I remember correctly, the combustion point of wood was higher than my oven would go. Just to be safe, I do recommend using the lowest setting, and set a timer so you don't forget about it.