Not sure what a 'self-grounding' switch is.
Of the 4 terminals, a little clarification....
Many starter solenoids have a main fuse sitting next to them. The key switch would get it's juice (positive feed) from the fused side of this.
I get it that the 'start' position would go to the start relay and decomp control.
I'm assuming this is an automotive style 'momentary on' starter switch?
Not sure why you have some stuff on the 'ign' terminal and some on the 'Acc' terminal.
If you wanted to make the key switch a headlight switch as well, then put the headlight, tail light, and instrument lights onto the 'Acc' position, then the bike would start without the lights (a little more cranking juice), and you'd then turn the bike to the 'Acc' position and ride.
Just run the ignition on the 'Ign' terminal.
I'd run fuses downstream of the key switch to both of those.
You are getting juice from the battery and/or regulator rectifier to the key switch. It then goes to the ignition, and when you want, the lights.
To further simplify, you can put a toggle switch on the headlight bucket to switch between lo and high beams.
With no turn signals, all that would be left on the handlebars would be the horn button (connected to the 'Acc' lead if you run with the lights on all the time). Use the key as a kill switch.
And you can take it a step further, and ditch the decompression crap. Just use one of the manual ones like RYCA sells. Might get a bit tricky using the hand-job ones, as you'd be turning the key with one hand, and holding the decomp with the other. Really tricky if you stalled in gear
-Armen

Are there 2 'on' positions? One for just running and one for running with lights?

Yup, off position, on position, and momentary start.

I'm assuming if you move the key to On without going to the third "momentary start", it'll power the lights and stuff.

You sure about that? The blueprint seems to say 4 positions. Off/Acc/run/start

A 3 position switch only energizes the ignition system and starter (solenoid if so equipped). Requires a separate start button/pedal/knob.

You want the generic 60A 4 position heavy duty switch. Run a 20A circuit breaker or fuse between battery and switch. Wire the starter solenoid to ign post, everything else to the run post. If you get confused, the wiring diagram for a Slant 6 Dodge engine is close enough, post 1974 with electronic ignition only. A post 1973 Ford diagram works as well.

Easiest way? Buy the mc specific switch. Check with LowBrow Customs or similar.

The key switch has 3 positions according to the diagram.  In the OFF position the key can be removed and nothing is connected in a circuit.  If the switch is turned 40 degrees the battery terminal is connected to the ACC & IGN teminal.  The next 40 degree rotation of the switch is spring loaded.....and the ACC & IGN stay connected - but and the starter circuit is energized until you release the the key to rotate back to the ON position.

I am really not sure why you wouldn't want to use a starter switch up on the handlebar that you can push with your thumb.....if you stall this bike at an intersection it is going to take some real gymnastics to get the bike started again.....as they are just not enough hands to hold in the clutch with your left hand, the throttle with your right hand.....and then somehow get to the key switch.

Dave's point is valid. That you have a switch that won't do what you need is not something to let get you in an unsafe position.
What happens if you stall it on seriously uneven ground? And you screwed up and stopped in third?
You need to fire it up and get out of the way.
Left foot on the ground.
Right, working the shifter.
Left hand, clutch, and starter button
Right hand, gas and brake.

If the start button is anywhere else, you're in a bad situation.
Okay, you're going Already in a bad situation, but it just got wurser.
I hung the left peg in a pothole doing a u turn. Stalled in oncoming traffic, fired up, ran down the gears and hauled butt.