Why is this MOSFET burning?
If you put a diode in a circuit that is in series with a transformer then you are applying a DC voltage to that transformer primary and it will saturate its magnetic core and take a phenomenal current (theoretically) and blow fuses and burn the MOSFET and probably burn the diode.

If the load isn't a transformer (but say a heater element) then the addition of the diode prevents the gate-source capacitor (C3) being charged up and, as a result, the MOSFET (M1) doesn't turn on properly and will likely burn due to not enough gate-source voltage. If you don't apply enough gate-source voltage to a MOSFET it will enter its so-called linear region and suffer from thermal runaway

The whole point about this circuit is that C3 is charged up to D2's zener voltage when Phase_A is negative relative to neutral - because of D7, you are preventing M1's source going negative hence you are only partially turning on M1 and it gets hot and burns.