I was pulling plug wires at the plugs while the engine was running to find which cylinder was misfiring. After the wire was free of the plug, it sparked from the boot to the plug (or ground) and a small fire started right near the plug. Could that mean the tapered area where the plug seals is damaged? Is there a way to resurface that area?

 

for the moment I wouldn't worry too much about this. I have seen oil seeping through there before. If you flooded your engine and the engine tried to compress the excess petrol in there it might have shoved some out of the plug slowly but surely. it's supposed to be a tight connection but I've seen black soot coming out of there before on extremely rich engines. Unless the petrol is not coming from the top (leak in EFI etc), I'd check on that again when your engine is running. if it's running properly and there is a leak it will blow out there. you'll see then