Definitely electrical. If you want to save money, get yourself a shop manual and a multimeter and start tracing wires. I've seen the symptoms you are describing before and each time it was a different problem. The most unusual cause was a faulty kill switch on the bike! It took me 3 weeks to figure that one out!
One quick question... When the tach is bouncing around, is the engine reving to the same speeds the tach is indicating? If it is not, then it is definitely an electrical problem.
How long was the bike sitting before you bought it?
I prefer to step lightly and carry a BIG stick...