It sounds to me that you have a bad plug wire insulating boot at the coil. There shouldn't be any spark arcing while the plug wire is installed correctly. Remember that electricity is lazy, and will take the shortest route to ground whenever possible. In this case it's from the coil directly to the closest place to sink to ground, which is why you didn't have this arcing problem when you put the plug back in the wire. Be sure the plug wire is on the coil all the way, and there's no cracks in the rubber boot. If you get a spark when you turn on the ignition, that just means that the points are making contact, and you get current flow to the coil, which will produce a spark. That shouldn't be anything to worry about.