This also sounds like a coil with one of the spark wires broken inside. Try tugging on the sparkplug wires, see if they come out of the coil. They should not. A severely burned-out resistor cap is also a possible, but normally only shows up this way in humid climates.
I just went through this (again) with my K2 two years ago. The #3 wire was corroded in two inside the coil. When I tugged on it, it came out. I pushed it in as far as it would go, and it would run OK between 2000 and 6000 RPM, but cut out at idle and above 6K. Getting the new coil solved it, of course. This is not the first time in 36 years this has happened to it.
My poor brother went all the way across Kansas from here in Colorado after we had toured the Southwest one summer together. His 500 started acting up about 100 miles from here, and he changed points (twice), condensors, flushed carbs, tank, new plugs (twice) all the way across Kansas, 100 miles at a time, until he decided all that was left was coils. It ran 9 more years after that, then he gave it to our little brother who rode it another 5 years.