The chip is most likely in a plastic package (I don't know that chip). The chip got hot enough to get the plastic to start smoking. You are extremely lucky that the chip still works, however, there is most certainly damage done to the chip. The chip will not perform to rated spec anymore and will not last as long as it should and will most probably get hotter a lot quicker on your next dangerous attempt.
Thank you for the explanation. It does seem function a bit unpredictable after the incidance, it time for me to get another one.