After adding the heater to the body today I was looking at the alternator and noticed that the heavy red wire hooked to the Batt position has been hot enough to partially melt the insulation. I'm using a Transpo #F7078 one wire voltage regulator on the alternator, could this cause this? There is no other evidence of wiring problems/overheated wiring and I never had a charging problem with the battery.

Below the heads, on top of the block, front and rear there are two lugs that protrude outward from the block. They measure 1 1/2" long by about 3/8" wide. Is there any reason besides a leaking head gasket that there would be antifreeze resting here?