YouTube Video explaining my issues. Appreciate the help 

Blimey, now I've seen it all, if it is arcing. Thanks for posting. Engine mount bolts tight. I've got no idea.

I have no idea either
there was a lot of white dust in the mag cover. Which I assume is the rot of the magnesium cover and I’m thinking the electrical from the rotor was causing the magnesium to ignite and then sticking to the flywheel?? I think if I’m not mistaken wasn’t there some sort of a grenade in Vietnam that was magnesium? 

maybe someone else can chime in with some information 

Spray the inside of the cover with Gibbs Lubricant.  It stops magnesium corrosion and can be painted over.  

gibbsbrandlubricant.com/shop/

I've never seen that kind of marks on a flywheel.  Almost looks like someone set it across battery terminals?  (Maybe they were trying to remagnetize or something?  LOL)

The evidence of water is why I've learned to remove both the oil pump and ignition covers after washing bike or riding in the wet.  Very common way for oil pumps and ignitions to get messed up.  

Remove the rotor and clean everything thoroughly . It is very easy for the ignition pulser coil to be damaged with corrosion crud .

Man I appreciate the help and support and I will order the Gibbs lube it really looks interesting to me.

I love trying new stuff like that!

Here is a up close still picture I posted to Imgur

imgur.com/gallery/1975-dt400b-flywheel-2UZzw6I

 

If that one was welded maybe for balance or some other reason, it could be brittle and of course you
wouldn't want it to fly apart. if you decide to get another, saw a used one on ebay $65. Of course, you have to figure out what is going on.

Here is a new one too across the pond. These guys have all the good stuff.
FOTO2173. www.cmsnl.com/products/rotor-assy_oc-0001-1518/

It is theoretically possible, you have a hydrogen fire burning in there when water is present. 

There's no sourcing going on on there unlike the minor sparks from a points mag. Expanding the photo I can see weld spots so wonder I'd someone was trying to get the flywheel off & tried welding a puller plate to the face of it. Wouldn't have been strong enough with just a spot of weld. Or welding a weight to it for more inertia. Unlikely all of those thoughts.

I think you’re right Rt325 you can see the little balls of slag from stick weld. It really does look like someone welded a plate to remove the flywheel