The bug report form (which was paper in those days) had a few of the usual checkboxes and fields to fill in, including one for "is the problem reproducible?" That box was checked. Someone had actually gone to the effort of standing by their terminal with a fire extinguisher, running the same command and putting out the fire when it caught fire again.
It turns out the problem was in some software that emulated page feeds by doing repeated line feeds. Some overflow or underflow bug caused an integer to wrap around, so instead of advancing a few lines to the next page, it would try to advance thousands or millions of lines. This particular terminal model was a new, high speed one, so it would try to advance the paper really fast. It was using those perforated strips at the sides, with the pegs that went into the holes. The pegs and holes weren't perfectly aligned, so the pegs would sometimes clip the holes a bit, causing some bits of paper to shred and get kicked up as dust. Along with a spark, I don't recall if it was from the motor or just static buildup caused by the friction of the paper, and the paper dust would ignite, causing the terminal to catch fire.
I just love the image of whoever submitted that bug report, seeing the "is it reproducible" checkbox on the form, and standing by the terminal with a fire extinguisher to put it out while doing the same thing to make sure the problem was reproducible.