The reason for the smoke is most likely that the upper coals weren't hot, while the lower ones were. This usually occurs when someone adds a large amount of fresh charcoal on top of burning coals and turns up the blast. Smoke issues until the upper coals reach ignition temperature. Once the upper coals are glowing, the smoke (unburned fuel gasses) will burn cleanly, with as you mention, a large flame issuing from the port in the lid.
True charcoal, made from wood, burns very differently than compressed briquet type charcoal, which may contain wood waste, low grade coal, and petroleum waste products. I've used both.
The briquets will work well for aluminum melting but must be started properly, starting with a low layer, making sure that is glowing, and gradually addling layers bringing them to ignition with no blast and the lid off until all briquets are well lit. They do produce a lot of ash, and in a big melt will require replenshing during the melt. The frequency of replenishing will be proportional to the amount of fuel you can fit in the furnace compared to the crucible size. Obviously, a big melt volume requires more fuel, but reduces the fuel capacity of the furnace barrel at the same time, so has a doubly negative effect.
A furnace can also smoke if the volume of fuel is disproportionately large compared to the air supply. As the fuel is used up, the proportion of fuel reduces, and a smoky burn can clear up that way, as well.