Check the grounds first. If you don't find any ground problems, replace the ignition switch.
Grounds
Grounds are important to any electrical system, and especially to computer controlled engines.
In an automobile, the ground is the return path for power to get back to the alternator and battery.
1.) The main power ground is from engine block to battery: it is the power ground for the starter & alternator.
2.) The secondary power ground is between the back of the intake manifold and the driver's side firewall. It is often missing or loose. It supplies ground for the alternator, A/C compressor clutch and other electrical accessories such as the gauges.
Any car that has a 3G or high output current alternator needs a 4 gauge ground wire running from the block to the chassis ground where the battery pigtail ground connects. The 3G has a 130 amp capacity, so you wire the power side with 4 gauge wire. It stands to reason that the ground side handles just as much current, so it needs to be 4 gauge too.
The picture shows the common ground point for the battery , computer, & extra 3G alternator ground wire as described above in paragraph 2. A screwdriver points to the bolt that is the common ground point.
The battery common ground is a 10 gauge pigtail with the computer ground attached to it.
Picture courtesy timewarped1972
Correct negative battery ground cable.
3.) The computer has its own dedicated power ground that comes off the ground pigtail on the battery ground wire. Due to its proximity to the battery, it may become corroded by acid fumes from the battery.
In 86-90 model cars, it is a black cylinder about 2 1/2" long by 1" diameter with a black/lt green wire.
In 91-95 model cars it is a black cylinder about 2 1/2" long by 1" diameter with a black/white wire.
You'll find it up next to the starter solenoid where the wire goes into the wiring harness.
4.) All the sensors have a common separate signal ground. This includes the TPS, ACT, EGR, BAP, & VSS sensors.
5.) The O2 sensor heaters have their own ground (HEGO ground) coming from the computer. This is different and separate from the O2 sensor ground. It is an orange wire with a ring terminal on it. It is located in the fuel injector wiring harness and comes out under the throttle body. It gets connected to a manifold or bolt on back of the cylinder head.
6.) The TFI module has 2 grounds: one for the foil shield around the wires and another for the module itself. The TFI module ground terminates inside the computer.
7.) The computer takes the shield ground for the TFI module and runs it from pin 20 to the chassis near the computer.
8.) The computer's main power ground (the one that comes from the battery ground wire) uses pins 40 & 60 for all the things it controls internally.
See http://assets.fluke.com/appnotes/automotive/beatbook.pdf for help for help troubleshooting voltage drops across connections and components. .
Ignition switch replacement
There was a FREE recall on Ford ignition switches. They overheat and sometimes catch fire. That burns up the steering column and sometimes the car interior. Since this is very old information, you may not be able to get the switch replaced for free anymore. The auto parts stores sell the switches for $13-$15.
Saleen0679 was nice enough to dig this up for us awhile back:
Replace a 1979-1993 Ignition Switch Assembly
