Ignition Switch Connector Fail

What is the best way to fix this? Replace switch- connector? Or simply place new terminals on each end of red and reconnect? Thanks!!
IF the metal terminals will be retained the connector, you can continue to use it - at least for now.
If the terminals are not retained, when the connector halves are pushed together the terminal will back out. Result will be a poor connection.

I'd remove the terminals that show heat damage and check each for corrosion, and condition of the crimp and wire strands. Then decide if they should be replaced.

Yes. Look for a new or good connector, even if you don't need it right now.

Next. As Redfish was pointing out, find the reason it overheated.
1. Poor connections - either at the connector or downstream.
2. Excess power draw down stream.

This is a situation where measuring for voltage drop should reveal high resistance in a circuit.
Remember, for voltage drops to occur, there must be current flowing through the circuit.
If you do some of this testing with the engine off (key on), observe the ammeter for each test. If there appears to be high flow for a device, then the cause is more likely the device or a short.