having just powered my way through the book (I got it this morning!), and with all the insanity that happened, I think that smoke refers to the fact that the suit commandeer was dead, or a ghost. smoke is what is left when fire dies (a ghost if you will), and the suit was probably wandering looking for revenge(i think it actually say that or vengeance), powered by the corruption in the world. or I might be mad. which is also a possibility.
I won't put a direct quote but paraphrase the situation:
[spoiler=]when the confessor talks to the tau, the tau claims he doesn't know how he survived, or even if he did. he then says that he is smoke.
further more he claims he was attacked by kroot (implied at least), and the confessor notes that he has personal heraldry marking him as someone of importance. later in a random village, a suit filled with something evil with matching insignia is found (it should be noted that the suit was said to be older and dead since before the war by the commissar, but the confessor saw it during the war).
so brief sum up, story has lots about the past and ghosts of the past, and smoke is the ghost of fire, thus the Tau is saying that he is dead in a round about way.[/spoiler]
all theories aside, I really enjoyed the book, even if there was not quite enough of the blue dudes and dudettes in it (more specifically the pathfinder) and you should pick up a copy if you get the chance.
this would be witty, but it isn't.