Got my parts and replaced everything. I pulled a couple of plugs to enable me to turn the crank and line up the high point of the points and they looked pretty ugly so replaced them also. Here is my question...I gapped the points to 0.018 and replaced the wires, cap, and rotor. It fired up and is running well. The dwell meter is 32. Do I adjust the gap downward or leave well enough alone?Just start off by changing the points. From your pic, you can see one of the six bumps on the distributor main shaft directly across from your points. Thus it is reasonable to infer your points are also resting on a bump. And if they are, they shouldn’t be closed. They look closed. Conclusion: the brush on the points has worn down, and the points are burned.
Buy a dwellmeter and a feeler gauge set. When you install the new points, set the gap per FSM. Then check with dwellmeter. Should read between 38-41 degrees. Probably doesn’t. Slowly close point gap and recheck until you get to 38-41. Then recheck point gap with feeler gauge and report back. If it’s under .012”, you should consider a new distributor.
I’m currently running down the same situation with one of my customers. This routine should be in a FAQ.