If you're still using the electrolock (armored cable between the switch & coil) you may be arching inside the cable. As you are well aware the old cloth insulation doesn't age well and it's used for that wire. Your mention of messing with the coil wiring raises a red flag. It's possible to replace that wire. The Filling Station has a repair guide for the 37-40 electrolock that may still be useful in your application. To the best of my knowledge the main difference between years is how it connects to the coil, the basic structure is the same.
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Name your dog Naked so you can walk Naked in the park.
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