You can tell for sure if its water or oil be dropping a bit in a glass of water if it desolves it water oil wont
Replace If it has a hole or leak in it, replace it. A leaking muffler is a very dangerous thing. I know, I had a very serious accident from a leaking muffler. Carbon Monxide is a odorless, tasteless, killer. It put me to sleep and I never saw it coming. I did however wake up just in time to see the tree coming, and was unable to miss it. Spent 2 weeks in the hospital over a $20 muffler. Get yourself a new muffler.
leaking or cracked manifold
the reason you here noise from your muffler are because less pressure from your engine is going fast.
The smoke from your muffler has a smell because what is coming out of the muffler is the products of the incomplete combustion of your fuel. Some of those products are gases and vapors that have color and some are dark but small particles - that is what you call smoke. But some of what comes out are various chemicals that your nose detects as odors.
overfueling, ignition/valve timing out, or hopefully just air leaking through knackered exhaust gasket into pipe, all causing secondary combustion.
You have leak most likely exhaust manifold gasket, if the noise is coming from the motor compartment. If it is coming from the bottom of the car, it could be leaking from a joint on the catalytic converterer or possibly around the O2 sensor. Take it to a muffler shop for exact diagnosis, it most cases the repairs are a simple fix for minimal cost.
A little water coming from the muffler for the first few minutes after you start the car is normal. Water vapor condenses inside the exhaust system when you stop the motor, and is expelled the next time you start. If there is a lot of water coming out, and it keeps coming even after the car is thoroughly warmed up, then it could be coolant leaking into the cylinders from a bad head gasket or a cracked block. You can have a mechanic do a pressure test on your cooling system to test for this. He also can test for the presence of exhaust gasses in the cooling system.
Most likely you are burning antifreeze. This could be cause by a leaking head gasket or an intake manifold gasket. This condition needs to be corrected quickly, as it could lead to catastrophic engine failure.
If it is leaking. Fluid will be coming from the right side. Remove wheel and plastic cover behind it. look up and forward to see pully. There is a hole in the bottom of the pump. If you see leaking or streak from leaking . replace the pump.
You may have a blown head gasket.
That wig stuff could be fiberglass used for absorbing sound but it shouldn't be coming out.
Heater core / hose leaking.