Keep in mind that the temperature sensor in the MES is down low, and on the back of the unit. So it'll see a different temperature than what your separate probe might. If you attach the two probes together, then you can get a feel for how far off the MES's probe/readout is.
In mine, the MES reads higher than actual temp, by an amount that varies from dead-on at 68 degrees to the MES reading about 18 degrees high at 275.
On the other hand, the MES's meat probe reads within a degree or two over the full range, which is nice because I can trust the built-in meat probe, at least.
As for the flare up, etc.
I suspect that the wood chip tray was blazing hot because the heating element was on full blast, and had been for some time as the MES tries to heat up to the set temperature. This is one of the things that's hard to get around with the MES. The chips will smoke or burn rapidly when the heater is on. But of course, they won't smoke at all when the heater is off.
So if you're trying to run the smoker at a high temperature when it's cold outside, the element will be on constantly or at least most of the time, so you'll get blazing smoke chips. But if you're trying to smoke at a cooler temperature when it's warm or hot outside, then the heating element won't be on very much, so you won't get much smoke at all.
What you can do is to soak the wood chips for a half hour or so in water before putting them into the smoker. Then, if your running the smoker hot (as we do for turkey), and it's cold outside (as it is here right now), you know that the heating element will be on for a very high duty cycle. Thus, the chip pan will be very hot. So you may want to add the (soaked) chips slowly, a bit at a time, throughout the smoking process, to limit how much smoke you get.
The chip hopper lets you do this without opening the smoker and letting the hot air out, so that's a plus.
I doubt the flare up did any real damage. It's what happens in the long term that counts.
I'm smoking my very first turkey right now in an MES 40 (old style), but I'm using an Amazin
AMNPS pellet gadget to create the smoke. That's a great option because it divorces the smoke production from the heating element's duty cycle.
As of now, it's about 40 degrees outside here, with a breeze, and the heating element has been on 100% constant for the last hour and a half, and the smoker is not up to the 275° I set it for. It's holding at about 268° (indicated on the MES). Since my MES's internal temp probe is probably off by about 18 degrees, I know that the temp in the smoker is actually about 250°, which is probably just fine.
My MES does have the 1200 Watt element, but it's still clearly not enough to keep the unit at 275° on a cool day with a breeze.
Good luck. I think we're both going to need it today!