OK, we will assume the distributor wiring harness to be good, but if you have not seen the shielding layer.....you have not inspected far enough away from the distributor yet.
And the damage to the wires does not come from pinching. The wires break due to the EXTREME vibration harmonics of the 4Y engine.
Regarding the check engine light flashing:
The light you refer to....upper right corner of instrument monitor panel.......is this correct?
That light is controlled by the ECU and under normal conditions (when engine is running) the light is either ON or OFF.
I have discussed your present problem with a friend and he told me that he once had a 7F that was having some dash light issues and that he finally found a broken ground wire that attaches to the left frame sidewall near where the horn mounts. He says it is where several ground wires are fastened to the frame, so you might want to look at that.