Amen on replacing the fuse holder! From the pictures, it appears the bike had a problem with the ignition switch and someone tapped into the 12v wire (red from the block connector) and wired it directly to the 12v switched (black wire) to indeed bypass the switch. The result? A melted fuse block.
This bike will need a decent amount of maintenance to all the electrical connections (handle bar controls, headlight bucket, block connectors, etc) to be electrically reliable. You may also discover other "melted" wire sections indicating a replacement loom/harness to be required. Best to be thorough with all this stuff.
I don't believe any bike shop would have performed the "splice" as it really could have caught fire. Perhaps someone spliced it, then took it the shop, where they said $$$$$ and the repair ended there. Either way, it can be fixed but will take some effort to do so properly.