Pretty distinct wall 4 at the original diameter of the injury. Not much inward spread of decay at all. Tree is compensating on either side of the injury, 'ram's horns' rolling in to try and include the wound.
Looks a hella lot worse from the outside...but the location on the tree and targets below would contribute to the decision about removal of appropriate bits. If it wasn't in a critical location or over the kid's paddling pool, I'd be inclined to clean it up, remove the loose bark and decayed wood (by hand, wee bit of scraping) and see what happens.
Disclaimer: I don't know the insect that caused this so implications bearing on that are something I don't know.
I love cutting open stuff like that, great picture.