Smoke came out of my 4s Headphone jack...?

So my phone has been doing this wierd thing where it would not play any sound over the speaker on say Itunes Music / Pandora / YouTube / Netflix , but the speaker worked fine when using the Speaker Phone mode during calls, the Mumble App, and a few other things (Ringer also worked fine however if I tried to adjust the volume with the control buttons it just showed a speaker icon, no adjustments) also had no key clicks....

However, if I turned on Mumble app which the sound worked for, and then started up one of the apps that the sound didnt work for, it would play the sound for that app just very quiet.

It had been going on like this for about 7-8 months, I had tried calling Verizon about the problem and the first thing they said was "well its probably water damaged so we can replace it you just have to pay a deductable" to which I said no I'm not paying a $100 deductable for a phone that has never been in the water / dropped / etc just because you don't know what is wrong with it and want to get me to fork out $100."

After googling the problem today I got two different possible issues, one said that the headphone jack could have debris in it, and the second said that it was something with the charger/dock port being broke and stuck in charging mode or something to that effect.

So first I blew out the charging port and the headphone jack with can-air, then I took a Q-Tip and ripped most of the cotton off and cleaned the headphone jack, the first pass with the Q-Tip yeilded some black cotton, so I flipped the Q-Tip and stripped that side and started again.......this time my phone shut off while I was doing it (I was talking to my kid and not paying attention to the cleaning) I didn't even notice it had shut off until my finger suddenly got really hot, I knee jerked and dropped my phone into my lap and noticed smoke coming out of the headphone jack.....

After I picked it up I looked down into the headphone jack and tried to blow into the jack with my mouth to get the smoke out of the way, then I noticed a red light that looked like a fire, not knowing what the **** to do (I **** sure wasn't going to dunk it in water and give the ******** at verizon the satisfaction of saying "Oh told you it was water damaged!" so I just ran my phone outside and put it on my porch.

After googling smoke/headphone jack I read that the battery is located under the headphone jack, now I am terrified of trying to turn the phone back on, and if that battery is Li-Po I'm glad I didn't put water on it.......but seriously? What happened to my phone?

<Edited by Host>