Apple has admitted that their 1st generation iPod nanos may have exploded and caused smoke and are willing to replace them. They finally admitted this thanks to a test done by kids at Japan's Ministry of Economy, Trade and Industry.

Apple says that the problem comes from one battery supplier and only affects 0.001 percent of 1st generation iPod nano. SO if you think your iPod nano is producing smoke than send it in to Apple and get a new one.