that is flex pipe that prevents movement in the exhaust pipes to transfer up to the engine. I don't know how much it might harm. If it's burning in through the pipes, maybe it would harm the cat? I'm not sure if the flex pipe has anything solid under the woven part that would keep a fluid from penetrating it, or it's just a thick layer of woven wires. Is the smoke coming out of the exhaust, or just from underneath to the sides of the car?