Personally I wouldn't drive it if it's smoking as it's dripping on the exhaust. With a flash point of 160C that would make me very nervous. And yes, if the pump runs dry it will shred itself very quickly.
Is it servotronic? Concievably it could leak from the servotronic solenoid, as that is basically a pressure control valve and is right in line with the steering column. I don't have enough experience of servotronic racks to say whether that is a common fault or not though. I also don't know if the rack still has to come out to change the solenoid, but I can ask.
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