It just seems odd to say the least that the firewall blocks show damage (both alt & batt) and this piece looks fine. 
Well, heat builds up (regarding electrical current flow) wherever the resistance is not zero. Wires in good condition can be considered zero ohms. Connectors in good clean condition are close to zero ohms, but not as good as a solid piece of wire. The problem with connectors carrying full system current flow is they have some resistance. And a small resistance with a lot of current translates into some heat being created. When heat is created, the metal connectors expand. When you shut the car off, the metal contracts. After years of expanding and contracting, the connectors are not as 'tight' fitting, creating higher resistance. Which then creates more heat, eventually melting or burning the connector. As Jaybee mentioned, the ammeter has better, more solid connections than the bulkhead connector, so your first indication of an electrical system issue was at the bulkhead connector. If one of the nuts on your ammeter had loosened a bit over the years, your ammeter gauge would have started to melt instead. (Glad it didn't)
