IMO, the basic problem with the switch is that the spiral spring which maintains contact tension does not have enough tension & is vulnerable to losing tension with heat. A very poor design.
If the moving contact bar ever gets hot due to high contact resistance caused by dirt or corrosion, the resultant heating when it is carrying current causes the tension spring to anneal & lose tension. Less tension causes MORE resistance - heating - spring annealing - contach burning, until the switch fails. Cleaning the contacts and/or setting the terminals higher will only help for a little while unless the spiral spring is replaced with a new one. I believe that even a new switch is questionable & only a matter of time before it fails. I have tried stretching the spring & retempering it, which works for a while, but I wouldn't trust it.
A related problem is that when the spring gets weak, the switch no longer holds exact detent index position & the small terminal that is supposed to ground the points side of the coil when the switch is turned off, intermittantly grounds the coil when not intended. This means that 'if" you put both large wires on one terminal to bypass the switch, they should be put on the large battery terminal, not on the ground terminal. Since there are two large terminals & one small terminal it would be easy to get the two reversed. Make sure that the doubled up connection is on the original battery side terminal of the switch.
Mysterious cases of ignition cutout can be cured by also disconnecting the ignition ground wire at the switch & securely insulating the end.
This all being said, if you absolutely have to have a battery cutoff switch, there are several aftermarket switches, intended for race cars & boats, that are of much higher quality & cost less than the original failure prone device. A marine supply store can supply a good switch.
D