D&H,
Lionel Flyer rolling stock, especially the heavyweights, are notorious for gauging issues. You seem to have diagnosed the problem and isolated it to the frog insulation. Make sure that the wheels aren't so wide that they're traversing both incoming rails at the same time. That could be why the arcing exposed the rail beneath the plastic frog. Off hand, I'd try to replace the plastic with either an epoxy or a thin piece of styrene. File away enough rail and plastic to spread the epoxy over the offending area, let harden and file to the rail head height. Also check the gauging of the wheels. For back spacing, I usually use a standard U.S. dime for measurement. If the offending wheels are arcing due to their width, not much can be done to them, and the turnout itself must be modified.
It could also be that the guard rail opposite the frog doesn't pull the wheels and axles from the frog sufficiently. A thin piece of styrene in the gap between it and the stock rail should pull the wheel set farther from the frog. Don't use a very thick piece, or other items may not traverse the turnout. Start with a .020" piece. If I remember correctly (and I usually don't) there is NO guard rail on the straight route. You may want to make one.
Are you sure the arcing is at the exit of the frog? The rails leading into the frog from the throat are quite close together and the wide wheels may be arcing there too. Again, proper gauging will help. Or filing away a bit of the rail in that location.
In any case, let us know if any of these suggestions help. Get a large magnifying glass and a flashlight to see close up where the problem lies. My turnouts are all hand made, and it took a bit of detective work to make the all operate flawlessly.
Good Luck!
