The exhaust donut seems too big. It should fit inside the cup on the exhaust port on the head. I know there are two sizes for these things and you seem to have the larger one. Check to see if the old one is compressed and blackened and still inside the port cup. If so, dig it out. Then buy the smaller one and match it up for size with the old. Or, if it fits snuggly inside the cup, you're good. As for the smoke, if as you say, it is not exhaust, did you recently paint the exhaust pipe or some other part that is now heating up? Other than that, I'm at a loss on the smoke question.