Your unfortunate conflagration is rare but not unheard of. I had much the same wire-shorting event on a '76 240 back in the nineties, and also recall a similar case on a '93 wagon on the West coast 3 or 4 years ago, if memory serves. I think Art was the savior on that one, but I struck out on a search for it. I suspect at some point your OP switch got roasted from within when it's grounded Black wire came in contact with the (always hot) Red cable from alternator to starter to Battery +.

Here's a post by Jessie Covert in Halifax, 3/28/10…
"The battery cable on 93s is much cheaper than earlier 240s. There is less than half as much insulation and it can chafe through. It happened on my 93 right by the alternator bracket. I had random warning lights, no charging and a good size crater in the alternator bracket from the battery cable shorting to it."

Here's one from another '93 in 2003.

And Anyone else with this potentially dangerous electrical problem?

Good luck on the repair,

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Bruce Young, '93 940-NA (current), 240s (one V8), 140s, 122s, since '63.