No, it looked perfect.
UPDATE:
Just got back from the Apple store. Complete waste of time, despite what people thought might happen. They asked me many questions (what else was plugged in, surge protector, any injury, any other damage, colour of the smoke, etc etc etc). I was then told the charger would be replaced for free, but they couldn't give me a direct quote for how much it would be to fix it until an engineer looked at it. It would be $310 minimum though. They also asked if I'd be willing to let an Apple engineer visit my house and inspect it??
I don't want to pay that much money to fix a machine that I no longer trust in my home. I would constantly be worried about it.
I also asked Apple if I could purchase a different computer at a prorated price (exchange it for this one), and was denied.
I think there are more cases of this happening than the internet leads us to believe, because based on the way they treated me, it seemed like a fairly common thing. The guy even specifically said a lot of the chargers do this, and sometimes it just twists inside of the metal cap and you can't even tell that it is fraying.
Bummer, but thanks for all of the suggestions. I guess it's pretty hit or miss with Apple stores, but I highly recommend against the one in University Village, WA.
EDIT: After some careful trimming and cleaning, I was able to get the carpet to the point you can barely tell anything happened, so theres some good news there