How did the Gen 1's differ from the Gen 2 in this grounding area?
Gen 1's did not have spiders at all. That "feature" was introduced in 2006, and carries on to today.
I think I can guess what is happening to cause S-4 to fail after the recall harness is installed:
The way that the S-4 spider is wired in the stock configuration, it has the common wire from 5 separate circuits (Radiator Fan #1, Radiator Fan #2, Grip Warmers (if present), Spider #3 and Spider #6) that are all tied to a single wire going back to battery negative (ground).
Likewise the two cascaded spiders #3 and #6 have 5 circuits ganged together, one on each being the ground going off to another pair of spiders #1 and #7, and #7 has yet another spider cascaded off of it, #8.
So, all of the ground currents for the entire bike eventually pass through one small pin of the S4 spider, and that was the one that would heat up, corrode, heat some more, and eventually burn up.
The recall "fix" was to add 5 ground wires to supplies a dedicated ground path for each of the 5 circuit pins in the S-4 spider (only). The problem with that fix is that one of those 5 pins carries all of the ground currents from Spiders S-6, S-7 and S-8 and those spiders have some significant current loads on them, specifically the two front headlamps (@100-110 watts), plus the front indicators, all of the handlebar switches, glove box solenoid which is always energized when the bike is on for a 2nd Gen or later, and the auxiliary socket in the glove box, so whatever you plug in there.
Even with a dedicated ground line for that pin, I'm guessing that is still too much current for the connection to withstand long term.