I'm convinced that the pulsing IS RIGHT IN the original dark blue "ign run" circuit
Not knowing how the MSD is hooked up, I cannot address that but "normally"
the MSD has a "power" (big) wire hooked direct to battery IE NOT switched and hot all the time
There will be a smaller wire going to "ign run" which "triggers" the MSD into operation
Sounds to me like you need to bypass the ballast
I am convinced that your problem is right in the IGN run harness path I mentioned earlier
ORIGINALLY this path
starts at the battery, goes through the fuse link from the start relay
through the bulkhead (can be dirty/ corroded/ damaged)
to the ammeter circuit
(ammeter can be loose / corroded)
through the ammeter and to the "in harness splice" This is a splice "on the other side" of the ammeter which branches off to supply UN fused HOT power to..................
the ignition switch
the fusebox "hot" buss
the headlight switch
one or two other things
IF THIS SPLICE has failed, --and they do-- stuff can happen
From the splice, through the ignition switch
(so once again, the IGN switch connector can be loose/ damaged/ corroded, or the switch can be damaged internally)
from the ign switch, back OUT the bulkhead connector (on the "dark blue" "ignition run) and so one MORE set of bulkhead connector contacts can have corrosion/ heat damage/ loose/ etc.
IN ORDER TO TEST this section of wiring, you need to put a LOAD on that circuit. One good way to do this, other than what is already there, is to use one or two "big" lamps, like a couple of stoplight bulbs, or even an old headlight.
Wire this up so that it hooks to the dark blue coming out of the bulkhead and going to the ballast. THIS ALSO FEEDS the blue field lead at the alternator, so you can also hook your lamp there.
So one more time, turn the key to run, the engine NOT running
Probe your meter on battery positive on one probe ---------- and the other probe on the dark blue wire, or the blue down at the alternator field.
IF you are reading this 1.6V you mentioned earlier, you have a BAD connection in that harness path.
So then, with key still in "run"
measure battery voltage, IE 12.X
measure blue field wire to ground, IE 12.X -- 1.6 so 11.x?
Now "backtrack" to find the "drop."
Get under the dash where the IGN switch connector can be accessed, and probe it there. Compare carefully voltage going "into" the switch with voltage coming "out."
If you are not getting your 1.6V difference there, look suspiciously at the bulkhead connector. If there's a goodly difference in voltage between the "dark blue" exiting the IGN switch, and the dark blue in the engine bay at the bulkhead connector, THAT would be an excellent place to start
I BELIEVE I ?? mentioned earlier, that one way to "fix" this is to install a relay out in the engine bay, which will remove the LOAD from the dark blue.
I would guess the reason that this problem diminishes as the battery charges up is that there is LESS CURRENT in the charging circuit, and less current means LESS voltage drop.
What I would guess is happening is that some bad connection (like the bulkhead connector) is causing LOW voltage to the regulator field circuit. The voltage regulator says
"OH **** the battery voltage is LOW, let's CHARGE." So the regulator ramps the voltage up and SUDDENLY the bad connection (shall we say) sort of "arcs across." Now the voltage on the dark blue jumps UP and the regulator says
"OH **** the battery voltage is LOW, let's REDUCE the charge" So the regulator ramps the alternator DOWN, and the bad connection "shows up" again.
This turns into a "Pete Repeat" known as a "low frequency oscillation" in the regulator circuit which is a "feedback loop." That is, "cause and effect."
For an idea of how and why this stuff happens, read this article:
http://www.madelectrical.com/electricaltech/amp-gauges.shtml
From that article is the below diagram, which is a simplified look at the main circuits in the harness
Notice the RED coming from the battery through the bulkhead connector. This connection is your FIRST suspect
Notice the RED goes to the ammeter, which can be loose, corroded
Notice the "welded splice" which Y's off to the ignition switch. This splice can (rarely) be bad
From the IGN switch (not shown) the dark blue "ign run" then goes back through the bulkhead on a DIFFERENT contact in the bulkhead connector. This would be your SECOND suspect