Yup, that's exactly what it looks like. I rebuilt the unit not so long ago. It worked great then suddenly stopped. I wish I'd made a mental note at the time, but I didn't when I rebuilt it. I think some sort of little tube fell out while running.
However, my other thought is the chamfered hole in the reservoir was the to "catch" air being blown over the gap. Perhaps they designed it this way so the piston doesn't suck air from the smoke chamber on the return stroke. In any event it doesn't work all of a sudden, I bet the tube fell out. Piston has a return spring, runs perfectly, element makes smoke, it just sits in the bowl unless you get a ton of speed then it wafts out like the piston wasn't moving, which it is... Hole is clear, I can see light, right through, clean as a whistle. It has been converted to a liquid element, but it really shouldn't matter, wick is not charred, it DID work then it stopped. There's not a lot to these units.
I've rebuilt lots of these lately (I use 3M fiberglass woven sheet from the auto parts store, it holds and wicks fluid better than anything I've found, even tiki torch, and you can do a ton of engines (50 or more?) for $6
This is one bizarre smoke unit.