Turns out that the ignition switch that was previously installed had been a cheap switch. The contacts corroded, got hot and caused the fire.
I had the oil and temperature guages replaced and mounted under the cabin bulkhead so I have a good look at them while underway. I finished refitting the actual panel that you see above so that it only houses the new ignition switch and the glow plug toggle. ( See photos) 
I hired a well seasoned Marine Diesel mechanic to go through the engine and electrical system and fix anything that wasn't right. He has done a great job so far. The following work has been done.
1) replaced the corroded ignition switch with a mac daddy marine ignition switch.
2) replaced the thermostat to keep the engine running cool.
3) replaced the 2 batteries in the boat with brand new 750 cranking amp deep cycle marine batteries.
4) replaced the alternator with a new OEM model. The old one was bad.
5) checked all fluids and topped off.
6) replaced several wires that were showing wear and age to ensure the best possible performance and dependability.
7) replaced all the guages to new and replaced all the wires as well.
8) installed new switch for the glow plugs.
9) Installed 4 new glow plugs
10) installed new starter.
11) installed new battery isolator switch.
The boat boasts a nice Westerbeke marine 4 cylinder diesel that runs strong and starts with ease. it only has 1400 hours on it so its got a long long life ahead of it. The total spent on the engine to make it perfect was $2200.00
