Have you got the mag kill switch hooked up? Might try disconnecting it to eliminate it as a possible cause.
Somewhere you are still making contact with ground inside the mag.
Can you see if it will throw a spark to the mag case vs the pony block or head? The grounding seems unlikely to be the problem, but that test should eliminate the possibility. If it will throw a spark to the head nut, then connect up the plug, ground it and check again. What are the plugs gapped at?
The switch has been disconnected and the mag works great when I bench test it. Almost seems like it’s not making a good ground to the motor.
The two base bolts would ground it fine. Naturally I assume you are turning it the correct direction. Oily mag could lean to mag windings? How about turning it on the mach with the cap removed and observe the points?
When I removed the mag I cleaned it, reset the points and tested it for spark. The mag windings are good because it gave a great spark with the cap on and using the same plug wires and spark plugs. It’s when it’s installed that I get no spark.
Second part of turning is how fast....... I suppose that pony uses a plain, non-impulse mag like the later D2 and D4 tractors, so rpm makes a big difference.