Potentiometer at 0 resistance + arduino = smoke
See the handy diagram below. Only RV1 is connected correctly- the other ones are connected in a way that will short the supply when the pot is at one end or the other. 

Your pot has probably been traumatized by the experience and it may have a dead spot that is near the end where it smoked, somewhat similar to the dead spot one could get in one's vision from staring directly into a high power laser beam (not recommended).







simulate this circuit &ndash; Schematic created using CircuitLab