What PC parts can produce bright flash, and smoke, with the PC still appearing to work fine afterwards?

I heard some strange noise from my less than a year old PC when it came back from 'sleep' mode; For about 10-20 seconds I could see bright light visible through ventilation holes (somewhere near the back panel); gradually the fire/flash died down, I could still smell some smoke out of it for the next 10 minutes afterwards. Upon opening up the case, I cannot quite tell where the burning exactly was coming from.

I had since turned it off and on several times, and had not noticed any obvious problems with it. Still all drives are showing, same amount of RAM, etc.

What component could have been burning like this? Will it do it again?

UPDATE: Thanks to all for the comments/answers: I have emailed the retailer (NCIX Canada) I got this PC from, with the description of the problem to see if their tech can take a look at it, as it sounds like I can't ignore it.

UPDATE 2: I had not tried everything indeed. Turns out the DVD drive connector cable was burned out; will see what happens now that both DVD drive and PSU got replaced ...

A burning capacitor could be your culprit. Regardless, if you saw a flash, or fire and noticed any smoke, the fact you've not noticed any problems simply means you've not yet tried to use whatever is broken. There isn't anything inside your computer that will keep on working happily after burning up. You should open up the computer and see what's been damaged. If you don't address the problem while things are working, you may have a small problem turn into a bigger and more expensive problem.

Good luck!

Almost certainly a Capacitor.

This happened to a Dell server that was running under my bed (don't ask, but basically to reduce the noise in my room) and didn't have enough ventilation.

Usually the area of the cap burst has smoke residue around it and in my case there was a strong smell associated with the burst and a 'pop' sound.

Server however kept on going....

I would bet a bug or other pest crawled into your power supply and was at the wrong place at the wrong time.

Open it up, if you have scorch marks on your motherboard, back up your data and replace your motherboard.

Otherwise, I'd replace your power supply as a precaution.

EDIT: Back up your data anyways. Also, do not open the power supply to check. If you notice nothing burnt/scorched with your motherboard or any other component in the system, replace the power supply.

The most likely culprit is a capacitor. Every part has a reason to be there; no part can fail without some adverse consequence on the system's operation (even if it's not immediately apparent). If the system appears to be working OK, then (total speculation) it might be a power supply filter capacitor on the mother board. Electrolytic capacitors are notorious for having very finite operational lifetimes. Of all components used in a computer (and computers contain lots of them), an electrolytic capacitor is most likely to be the first part to fail. These devices are also notorious for going up in a puff of smoke when they do fail.

Power supply filtering (one possible application of a capacitor) is intended to smooth out the voltage on the power bus. Without it, there will be more noise and voltage dips/spikes on the bus than with it. This is generally not a good thing because it can increase voltage stresses leading to failure of other parts, and at the very least can make the system unstable - prone to random glitchy behaviour of programs or the system as a whole. Although a filter capacitor could fail any time the computer is in operation, the most likely time it would occur is when the system is powered up, due to associated inrush currents and voltage surges. Although it could be located in the power supply, the fact it was so visible to you, and that it didn't have any immediate apparent impact on operation suggests that the failed part was likely on the motherboard. The capacitors in the power supply are usually much larger, and a failure of one of those would be more likely to produce an immediate, noticeable effect - the power supply going totally inoperative or the system being unable to start up on the degraded power.

Any evidence of smoke/fire should be followed up by careful inspection and checkout to identify and repair/replace the failed part. Continued use of the damaged and unrepaired system would not be a good idea.