Starter Binding, Looking for advice to prevent any more damage Options

[nwm5709]

I have a ’74 2.0 side shift that I have never had any issues cranking until now. I was experiencing some separate starting issues and hesitation while driving that I thought had to do with the ignition system, so I replaced the plugs, wires and points. When I went to start up to set the dwell and timing, I heard a grinding I had never heard before and the engine seemed like it had binded up. Afraid that something happened to the engine itself, I removed all the spark plugs, put the car in 5th, raised the rear wheel and was able to turn over the engine freely. After putting everything back together it did it again (this time with a remote starter switch from the rear of the car). It kept happening, and seemed like it was only binding up with the key in the ignition and turned to on (and while cranking the car via the actual ignition switch). It seemed to crank fine while the car was off.

I pulled the starter last night to find as expected that the starter gear was a little chewed up, but more disappointed to see the wear on the flywheel. My question is, what caused this and how do I proceed from here? Is there anyway I can get a newer (better) starter that won’t chew up the flywheel ring gear? Definitely hoping I can continue driving without replacing the flywheel anytime soon (IMG:style_emoticons/default/sad.gif) Photos are below