Have you changed the plug for a new one to see if the problem goes away? When you hold the plug 1/4" away from the head you are probably seeing a spark jumping from the outside of the plug to the head, not between the contacts, right?
The spark should be a nice blue spark and consistant in relation to the piston movement, the first port of call would be the plug. If the spark is still weak, change the HT lead, then HT coil. Past this point you will be looking at the coils on the stator, CDI etc...