Does this car have an aftermarket "killer stereo" installed? When pulled into a parking space, does it trip the motion sensor alarm on nearby cars? It sounds like you have unusually high alternator current demand, or the lug-to-cable connection at the alternator is corroded and/or damaged.
That wire should run warm with high electrical loads, but if it is melting the hood liner, the wire insulation and electrical tape will likely be next. Hopefully, your Mustang has a fiberglass hood like mine does.
I would think about replacing the wire. It would be OK to rotate the lug to a move favorable angle if you remove the lug and fit a thin insulator under it. The insulator will prevent electrical contact between the lug and alternator housing. It has to withstand high temperature. A 1" x 1" piece of epoxy printed circuit board material with a hole drilled in it would be an example of an effective insulator.
Did you ever determine where the original short circuit was?
That wire should run warm with high electrical loads, but if it is melting the hood liner, the wire insulation and electrical tape will likely be next. Hopefully, your Mustang has a fiberglass hood like mine does.
I would think about replacing the wire. It would be OK to rotate the lug to a move favorable angle if you remove the lug and fit a thin insulator under it. The insulator will prevent electrical contact between the lug and alternator housing. It has to withstand high temperature. A 1" x 1" piece of epoxy printed circuit board material with a hole drilled in it would be an example of an effective insulator.
Did you ever determine where the original short circuit was?