I've done probably 15 smokes in my #1, and have never had wood catch fire. I used the Smokin-It dowels for hickory, and Fruitawood chunks for fruit wood. I usually put the chunks near the back of the smoke box, make sure my drain hole is open, and try to not open the door during a cook. Curious - did you open the door before the dowels caught fire? That's a lot of oxygen rushing into a air-controlled environment.
Congrats on the new #3! Lots of good times ahead of you! Throw some pics up when you can, and hang out here when able. Welcome to the club!