+1 on loudhvx assessment of OEM fuse holders being a problem. On Z1's there's only one 20A fuse for the whole bike. Those old glass fuses and their connectors aren't up to flowing that kind of current demand. We've seen many Z1 fuse holders with the same heat damage as OP's.
We make it a point to replace the single 20A BUSS-style glass fuse on Z1's with a modern flat blade fuse. The holder tucks right in to where the OEM plastic holder lives.
We get the holders locally from PepBoys. Should be able to find elsewhere::
OP mentioned servicing the IG SW internals. We had a Z1 IG SW exhibiting very significant voltage drop. It was keyed same as the rest of the bike, and we really wanted to salvage it.
OP's SW might be different internally.
We found indications of arcing on the WH circuit contacts, likely analogous to the circuit in OP's pic. The WH circuit powers
everything on a Z1, so carries a lot of current.
The three-point rotary contacts are interchangeable; if a movable contact point is too badly damaged, they may be swapped. FYI, the pressure spring and tiny ball bearing in the hole under the fiber insulator & rotary contact loads the rotary contacts onto the stationary contact plate. They won't go flying across the shop, but are very small & easily roll away. Recommend disassembly on a towel or similar. The red nub is only being used to get the angle right for the pic; it isn't part of the IG SW:
Closeup of the rotary contact serving the WH circuit as found after cleaning carbon debris. Note the heat discoloration & missing brass material on the lower left contact point:
The stationary contact plate after cleaning. The WH circuit contact is at 3 o'clock in the pic. Note the contact material missing due to arcing:
Good Ridin'
slmjim & Z1BEBE