Key switch is grounded to the frame through the case of the key switch and uses a "ground" terminal on it to kill the magneto in the off position. You need to check for continuity between the "R" terminal and ground in the run position with the key switch unplugged. It's possible that the actually key switch is shorted. You say that you checked it for "shorts" but how did you check it? You can isolate the key switch from the frame of you don't have a meter. You have very low resistance in the run circuit, you're getting there.
I'm assuming from the print that you have to go past the Run position to run with lights so if it's blowing it in run then the actual head lights/tail lights are out of the equation.
Did you isolate the fuel solenoid and alternator yet as well?
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(2) Original, 100, 102, 124, 73, 800, #1 and #2 cart, brinly plows, disk, IH184, IH244, 1948 F Cub
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