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This goes back about 40 years for me. Both Lionel and TYCO had "smokers" in their train sets. My recollection was that the "special smoke oil" was a mixture of very highly refined kerosene and parafin wax. Try a hobby shop such as Hobby Town or some such.
Most Lionel engines have a small slider switch which can turn off the smoke generator. Check to see that the switch is in the ON position. Check the engine manual (available from Lionel's website) for the location of the switch.
Also, if the smoke generator is always on and no fluid had been used in the generator, it will eventually burn out. Replacement smoke generators are available from Lionel.
You may have to check if there is power to the heating element. You can also check to see if there is too much fluid. You can also put the engine in neutral and tap the chimney hole a few time to kind of "prime" the smoke unit.
This train set is very particular and getting it to work each Christmas is a family tradition in frustration. First you must make sure that all the pieces of track are connected properly and that the track is perfectly symmetrical and flat. We double-check the battery positions every year and find one in wrong. There are + and - signs, but they're hard to see; use a flashlight. There is a black toggle switch below and behind the red stack that toggles forward (to make the train go forward) and backwards (reverse); straight out perpendicular to the train is the "stop" position. Also, you have to start at a stop/switch station. One other note: behind the red stack, there is a smaller black stack. If you turn this, you can make smoke come out of the stack. I think I remember someone suggesting a drop of cooking oil. Hope this helps!!! Hope you get it set up for Christmas!!!
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