I think you are correct, the ignition resistor is not wired correctly.
Its difficult to know exactly how your wiring is set up from the description, but I suspect your problem is how it is wired.
If I understand correctly the wiring didn't smoke until you left the ignition on with the motor not running. I'd bet the points were closed and therefore basically putting your ignition circuit straight to ground. That is what smoked the wires.
The motor didn't run well because the points were fried by the full 12 volts on them. You have a full 12 volts because you don't have a properly wired ignition resistor. I'm guessing here, but based on your description I think that is what you have.
