Dana c is correct, the old gasket can go undetected as it has been compressed and discolored. I us something like a small bladed screw driver to lift it out. He's correct again in saying that the gasket goes inside of the exhaust port and is smashed into place by the muffler. Without an exhaust gasket that is properly fitted and compressed into place I doubt that any amount of tightening will seal the connection between the two pieces completely. I'm sure that once you get the gasket in and the tightened properly that the smoke will go away. If it doesn't and it isn't just some crap burning off of the muffler or engine, I suppose it could be an oil leak from the head (?). There shouldn't be anything in the gasket that can burn. I don't know if they still make them out of asbestos but it's something that is impervious to heat.

Doug - Olympia - Washington
 I don't know how many CTs I have.