K&T is basically air cooled so it will handle more current than any cable or raceway wiring method although you still use the same ampacity charts. I imagine the smoke was just the dust burning off the conductors, similar to the first time you turn on the toaster wire heat strips in an air handler after a long time. Here in SW Florida it might be years since the last time you had the heat on. Were any of the conductors discolored?
