Grounding Fire (almost) - Now What?

While the bulkhead connectors are off, fill the terminals with "di-electric silicone grease", available at any auto parts.
The harness which melted looks like somebody buggered with it before since it has thicker than normal electrical tape.
A good time to consider the MAD Bypass. An easy way with your small-block is to grab the ALT wire from a junkyard Magnum V-8 engine (trucks, Jeep GC). It runs across the timing cover straight to BATT+ (or relay box beside battery).