have had similar issues -- solenoid ground. Can test a ground wire from solenoid case to motor ground or battery ground, or small terminal to ground. On a starting hookup I have for testing, I ended up running a ground wire from the small solenoid terminal to battery ground. There could be a bad engine to battery ground as well. Sounds like you are close. (test with ground wires, not hot side).
Thats what I was thinking but isn't the one of the small solenoid terminal wires going to the cut off switch, then to the grounding ?
Also, here's food for thought.... so I went back out few minutes ago, to test it with a fully charged battery maybe it wasn't fully charges after last time. Anyways here's what happened;
1.) connected red wire first to positive.
2.) made sure everything else is grounded like ti should.
3.) noticed battery positive terminal is sort of dark grey or black/grey.
4.) as soon as I connected the black cable to the negative terminal, the red wire started to make sparks... then it sizzled. and half way through my wiring, I noticed smoke coming out... and the plastic cover on the wires to the motor melting. So I disconnected.
5.) ripped and cut through the plastic cover... to see the positive, negative and the switch wires. I did notice that these were once again put together by previous owner, he used a bolt to connect the positive with positive, and negative with negative... he used electric tape to divide the two, looks like the positive bolt, some how melted through the electric tape to the negative .. and so both were touching at that point through garbage of melted electric tape....
Anyways, cleaned that up, divided the two .. and connected to battery, no sparks, no nothing, no start.
That said, I really now need help and suggestion... should I go out and spend $60 to replace both cables from the engine to the battery... or should I clean up stuff again, better, use some kind of connector, tape it shut and try... or maybe since the positive battery terminal looks sort of cooked... would it be a bad battery??