Hi Byomarimba,
At this point, if you are fairly certain that you are getting good readings for the coil and condenser (following the details on the Old Lawnmower Club site), I can only think of a couple of things that have caused a similar issue for me.
Check the coil end of the HT lead to ensure that the terminal is getting good connection and once assembled check the terminal pad is seating properly.
When you stripped down the points box did everything go back the way it was? The reason that I say this is that there is an insulating washer that sits under one of the screws (I cannot remember which at the minute). If this does not go in or in the right location, you will not get a spark.
I would also further investigate the insulation that you have discussed. If there is anything distorting the insulating pad this can cause it to not insulate properly.
How fast are you spinning the flywheel when testing for a spark? Sometimes if the engine is being turned over slowly it will not get enough charge up to give a spark, this can be the case where the magnet is a bit weak.
Hope that you find the issue soon.
Cheers,
Sir Chook
