Hi Gareth and welcome to the forum.
Sounds like the switch has failed – nothing lasts for ever! The thin layer of water left by condensation is unlikely to cause flash-bangs directly, but corrosion caused over time by condensation inside the switch might. Or maybe the contacts arc intermittently due to old-age mechanical disarrangement.
I doubt the rotary converter is faulty, and the switch may be victim rather than root cause. Check the lathe's wiring carefully for loose connections and damaged insulation throughout. Rubber insulation ages badly and should be replaced. Though much better than rubber, plastic insulation can be damaged by heat or vibration chafed by edges – have a good look near grommets and cable clamps.
Ideally fuses should pop before equipment starts smoking, but an arcing bad connection might not draw enough current to do it. Arcing within fuse ratings is a common cause of electrical fires. Won't be the cause, but whilst checking the wiring confirm the fuse or circuit breaker is sensibly sized for the machine.
A visibly heat damaged switch must be replaced pronto. There's a good chance switch failure is the problem and all will be well after changing it.
Health and Safety Warning! Think carefully before tackling anything you don't understand! The risks are high: working on a live lathe on a damp concrete floor can be fatal. When working inside machines, the safety earth becomes a major hazard – touching live while the other hand is grounded via the lathe body is very nasty. Never work on machines unless absolutely certain the power is OFF. Unplug it.
Replacing the switch should be straightforward.
- Disconnect the power.
- Open the machine
- Make sure the new switch matches the old one – same contacts in the same place. Double Check. Not unknown for the design of a switch to vary over time, for similar part numbers to be used for different switches, and for otherwise compatible switches to have other contact layouts. If an old switch is no longer available it may be necessary to fit a modern alternative.
- Photograph the existing wiring, take copious notes and label the wires as necessary to make absolutely sure the new switch will be reconnected identically. Don't assume memory or the back of a fag packet will be good enough. Take pains.
- Remove the old switch. (Ranges from easy peasy to downright awkward depending on how the machine was originally assembled.)
- Install the new switch.
- Stand well back and reconnect the power to test. All being well, disconnect power and make safe by refitting covers etc.
- Reconnect power and cautiously confirm normal operation.
- Take a break if the job becomes complicated or frustrating for any reason.
The really dangerous bit is what happens if the machine still doesn't work. Even experienced electricians are prone to lose their heads and poke about thoughtlessly inside live equipment with a screwdriver or multimeter when a fix fails. Stay calm. Better to walk the dog than indulge in angry bodging.
The forum can help, especially if you can post photos as described HERE but it can't cover big skills gaps. Don't be afraid to spend money on an electrician!
Dave