Since the 1970's most mains-connected power supply units (PSU) incorporate a high-frequency (> 20 kHz) switching regulator, replacing heavy transformers operating at the mains frequency (50 or 60 Hz). In order to keep switching-related noise from the outside world, the mains connection of a switching-mode power supply is bridged by a capacitor, besides other measures such as faraday-shielding. These electromagnetic inter-ference suppression capacitors (in short EMI caps) have a tendency to break down after years of use - or maybe in particular after years of rest. This is a real threat in situations where old computers are demonstrated live: the nasty smelling smoke enforces immediate evacuation and forced ventilation of the room.
Cutting the power is a correct intuitive reaction, but the damage is already done. There is no danger of a fire, and often the affected machine will just continue working as long as the power is left on.
We met this problem three times in one year's time, involving an IBM 5175 Personal Graphics monitor, an Apple II Europlus and an SGI Personal Iris. The Apple II 'exploded' right before it was going to be presented in a TV show!
The visible and smellable effects strongly suggest to discard the afflicted machine immediately. However, an EMI capacitor can usually be replaced easily, even if an identical but obsolete part is not available. Modern capacitors with equal or better specifications are much smaller. Notice that special capacitors must be used for this purpose, and that they must be handled with special care - see for instance this datasheet.
As to the SGI machine, in view of the abundant formation of rust in its iron frame, it must have been stored in a moist environment. This is a possible explanation of the problem in this particular case: EMI capacitors are sensitive to humidity.
October 2013