Early Lionel postwar smoke units that have the steel cap that fits over the housing did not have wadding.
Look at the 12-47 issue of the Lionel Service Manual page(s) for the smoke unit, and you will see that those smoke units do use a smoke unit lining (671-221). I don't think I have ever serviced a locomotive that had a smoke unit that did not have a lining. As I posted earlier, I do have a quantity of early smoke units (both 671-170 and 675-10) that were assembled without any lining. I am fairly certain they came from the Madison Hardware auction, and may have been put together by them. Not only were they assembled without a lining, but power lead has plastic insulation, as opposed to cloth covered, as was typically used at the factory. (When did plastic wire insulation come into use?).
I have used a couple of the smoke units without adding a liner, they do smoke fine.