An orange colored spark is not normal. It should be blue, as you suspected.
Hopefully the mud dauber nest didn't cause any real damage, but I doubt if it did. With a magneto, you do need non-resistor spark plugs such as Autolite 3116, and also you need solid, copper core plug wires, but since it DID run pretty good, and then it didn't, it might just need a set of points and condensor, or maybe just drag a dollar bill through the contact points and clean the crud off. Worst case scenario, the mag coil is getting weak and needs to be replaced.
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