Certainly an interesting photo. Still seems to be something weird going on there. Sure, they didn't use the proper standoffs on top of the unit and it looks like there is blow-in insulation which rained down inside the chimney chase. But the most curious part to me is the charring on the sheetrock and 2x4 at the side of the firebox.
Looking back at the instructions for my fireplace, they call for only 7/16" clearance to 2x4 on the side of the unit. (I don't expect this is the exact same unit, but that clearance seems fairly typical.) Drywall can come a bit closer and touch the actual standoff. So I could see how you could jam a 2x4 closer, but it's hard to believe that at 7/16 inch clearance the unit would be perfectly fine for the lifetime of the house and at 5/16" it would char and burst into flames in a few years?!?! Similar on the top - yes, they have the 2x4's closer than the standoff. But the sheetrock can typically come down and touch the top of the unit. (ie it's essentially 'foolproof' in that you can but it right up to the standoff. But this sheetrock seems to be charred too.
I'm wondering if they are not burning gas with the damper closed, or that blown in insulation has closed off some of the air venting. Either way, it seems like a lot of heat building up there.
Will attach some images here and the key image - in case it gets pulled down.
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