It's probably one of three things...
1) a defective chip.
2) a short-circuit in the car, most likely from the installation
3) the motor is drawing too much power for the components in the chip to handle.
One defective chip is not uncommon (and the smoking will usually happen almost straight away), but if it has happened two, three or four times... it's unlikely to be a faulty chip each time.
The possible short-circuit points can be anywhere from the braids through to the motor. If you've soldered in a ferrite man to the motor, that can be an area to look at closely - soldering the motor wires to the legs of the capacitor can be tricky and the wires or solder can touch. It's not always the wiring - if the chip is sitting anywhere near metal parts (eg the motor), this could cause metal components on the chip to touch and short out. Also check that the ferrite man and the motor wires are insulated from the motor can and that the motor can is not touching the track rails.
It's always important to test a car in 'analogue' mode before you fit the chip to make sure it is working okay. Any issues with the car should be resolved first. Then fit the chip.
As for motors, the blurb about the C7005 on this website is this:
The in-car microprocessor module allows the conversion of a standard Scalextric car to work on Scalextric Digital layouts.
The important word is 'standard' which means fitted with the standard Scalextric motor. Many racers will choose to fit the Slot.it SP15B SSD chip (or an uprated C7005 - see below) to the premium racing brands like Slot.it, NSR, Thunderslot, Avant Slot etc and cars with more powerful racing motors (some Ninco, SCX etc). If the motor is drawing more current through the chip than the components can handle, it will smoke. The latest version of the C8515 digital plug will also handle higher-powered motors as standard.
The NSR Shark 20k motor that comes as standard in your P68 would fall into the 'too powerful for the C7005' category.
Even with the standard Scalextric motor (or Carrera, Fly etc) I would avoid 'stalling' the motor on full throttle - for example: truing the tyres; trying to bulldoze your way through obstacles on the track; allowing a marshal, fellow-racer or spectactor to hold down a car and not let it move etc. Full power without the motor moving is likely to smoke the chip.
Unfortunately, a smoking C7005 chip is almost certainly a dead (or dying) chip. Some enthusiasts do offer to repair chips and some will even modify a C7005 chip with uprated components to handle the more powerful motors. Greg K is the go-to guy in the UK and can be contacted via Slot Forum. Greg recently repaired a chip for me and I was very happy with his work and his service. There's a fascinating thread looking at his work on Slot Forum here.
Hope that helps!