completely possible. i had a machine in not so long ago. it had a powercool 550 watt psu in it.
the sata power cables were melted, it absolutely stank, the inside of the case had black smoke / scorch marks on it, the sata connectors for the dvd-rw and SSD were burnt to a crisp, they fell to bits in an avalanche of disgusting, smelly, acrid burnt plastic.
i think what had happened was a layer of dust and crud had built up on one of the sata power connectors over time. its one of the ones that isnt fully moulded, it had little blanks removed on the back of the connector. (for testing the voltage i suppose?). the sata connector was really tight up against the chassis, a mm ish away.
i think the whole thing shorted through the crud buildup against the case.
I didn't believe the customer when they told me what had happened, but after seeing it, i was converted. quite spectacular by all accounts when it happened. I'm not sure about massive flames and flying debris across a whole room, but enough to scare the shit out of you. and 30 years ago, PSU's were indeed very different. (for different read "absolute dog shit"), so yeah, why not.
i now make sure all the psu's i buy dont have those little blanks taken out own the back of the power connectors..... corsair cx 550m's these days.