Definitely a problem there. ESC's get warm at times, but if it melted stuff.....

Sure you hooked things up right? Reversed battery connections will cause it, but if the motor ran for a while. Which brings up another point; you should NEVER run an electric motor full throttle on the bench for more than a few seconds at a time. You'll fry it. (Maybe the ESC simply saved your motor.)

What amperage is the ESC rated for, what motor, and what battery pack (voltage) are you running?
Dennis-

(Oh, and by the way, you'll get more responses and better input if you post in the "electrics" forums.)