Smoking Nardini 1440E

[KC338]

Hi all, I have a situation on my hands and I'm wondering if it's familiar to any of you.

I've recently been given access to an otherwise unused machine shop, and had been making good use of it. We've got a Nardini 1440E, an exact copy of the one I worked on for several years. I'm very comfortable with the machine, but I've encountered a new problem:

Here I was doing a final pass on a small aluminum cone, turning the machine backwards at 2,000RPM with the tool on the opposite side from normal to keep the tool slide out of the way of the headstock, and as I was about halfway through, the machine slowed down briefly as if there had been a sudden drain on the power supply somewhere in the shop. I'd noticed the people in the other room had some new and very large toys, so I thought they'd flipped a switch that was a little big for the building. Just as I was thinking I'd better go ask them what they'd done, my machine slows down and stays down, so I shut it off immediately. As I'm standing there looking at the half-finished piece, smoke starts coming out around it. No fire, but the spindle was very hot and smoking from some unknown point. I checked the oil windows when I started working and everything looked just fine. When I turn the chuck by hand, it makes a slight rattling noise that it didn't before. It didn't want to turn at all immediately after I shut it off, but now it turns freely (but noisily).

I think it's got to be some kind of bearing, but before I go pulling things apart I thought I'd ask around and see if anyone's had a similar experience. I've got a feeling this is either going to be very time consuming or very expensive... Maybe both? Happy days...