I think you are always going to show continuity between that grounding lever (switch) and ground. I suspect you are just going back to ground through the primary side of the coil. I just checked my good mag that way and I show continuity there. Check out the neat animated gif at this site for a circuit diagram. Scroll down a ways to see it. The mag is of different design but I think the theory is the same.
Have you made sure that the points are clean and that the insulating tube and washers surrounding the grounding lever mounting stud are in good shape? Make sure there is no corrosion in the sockets of the cap and that the rotor and adjacent cap electrical surfaces are clean and not rusty or corroded.
Also check the continuity of the secondary side of your coil. Go between the sping clip on the side of the coil and ground. You should show continuity between those points.
Maybe Steve at B&B custom circuits will stop by and shed a more experienced opinion on your situation. If he misses your post here, try posting a question with "Steve at B&B?" as the subject. He drops by here routinely and is more likely to notice it that way.