How to prevent squirrels from damaging pipe boots

This is probably a futile exercise. Mice can squeeze through the smallest of gaps so you'd have to virtually hermetically seal your house to prevent any mouse coming in. Obviously you can block up the largest/most obvious holes and make it generally more difficult.

What you can do is make your house a less welcoming environment.

Make sure that you keep all food sealed in plastic containers etc. so that your house is not a source of food for them. They might still get in, but only for warmth.

Is the 2" diameter pipe (connected to the downspout) the only means for water to flow off the roof?

If yes, does this current system allow the roof to drain correctly? ie Does water flow off the roof in a reasonable manner or does it build up (puddling) or does it overflow else where off the roof?

I'll then fasten the overhang to the vertical edge using a termination bar (basically a strip of aluminum with screw holes every 6" or so) along with some EPDM caulk.

This use of termination bars seems like it should be really reliable, but possibly overkill -- they're designed to help seal the EPDM on its way up a wall, and this is down.

Also the above has me a little confused, is the EPDM being terminated via being dressed vertically up a wall or is it being bent down a wall (a photo of the existing would greatly help)?