You mention a 12 volt ballasted coil and its arcing again.
Something here is at odds with normal convention,
The ballast resistor systems were basically designed to use a 9 volt coil as mentioned - early doors - so your 12 volt coil might explains why the wiring was changed to bypass the ballast resistors.
I personally have not come across a system that was ballasted and uses a 12 volt coil.
Moving on however, the whole point of HT coil and dizzy turrets, insulations, rubber boots and plug leads is to contain the high voltage, not to let it out where it can be seen - under any circumstances.
If your ignition system is arcing then four possible (logical?) reasons come to mind.
1 there is still dirt/grime/damp around those places mentioned
OR
2 someone has fitted a high energy coil and it is simply battering the system with A voltage too high for the stock insulation components.
OR
3 some or all spark plug gaps are set too wide and the sparks are preferring to find their route to earth via any other means.
OR
4 One or more spark plug leads are broken and the sparks for those cylinders are arcing across to their neighbours and causing the misfire.
NB, for No 4 to happen implies that there is too much HT voltage.
Regarding a replacement Distributor etc.
If you go for either 35DM8 or 35DLM8 - seen here
http://www.v8engines.com/electrics-1.htm
Then your circuit diagram will need to be something like this:
However because its a stock 3.5 ignition system diagram, that also implies using an unmodified Dizzy with conventional vacuum advance and conventional Timing in the range 4 - 8 deg BTDC.
If you use something modified, be prepared for some empirical sessions.