Yeah, I've seen Mov's go up, but certainly the proper UL, CSA, etc. approved ones (i.e. name brand stuff like Siemens, etc.) will withstand more and should be self extinguishing material. Kapton is good here and I usually wrap a layer over the MOV's, if for no other reason than I've had fair size one go 'bang' on 415V supplies and copping the bits in the face certainly isn't something you want if you're working on it at the time!
Looking at that picture of the MOV (I'm assuming it is a MOV and not a Ceramic suppresion cap?), it looks like they are only protecting the downstream side. Looks to be a MOV on each line (A & N) to Earth, an X2 Cap, then a small fuse leading to a 3rd MOV on the downstream side. MOV's are designed for very short duration pulses (Spikes) and can handle huge fault currents for that short duration. If it's a longer duration Surge or a very intense Spike, the MOV will eventually fail and likely fail in a short-circuit condition. Under those circumstances a local fuse is needed to blow (or breaker trip) and stop that fault current.
From those pictures it appears like there is no local fuse (unless the switch is also a breaker), so the only thing that can blow (or trip) is the Fuse or Circuit breaker back at your switchboard and that might be a 20A or more breaker, perhaps with a C characteristic (relatively slow). Chances are the relatively light duty lead on the breaker would be light enough to make it hard for the breaker back at the board to trip because of the leads resistance. The lead will heat up, the MOV will still be trying to clamp (or may have gone short by now) and so it will keep heating and ... 1 x BBQ powerboard.
Sometimes the switch is also a breaker, but if it is it will be a cheap Thermal breaker and will have a very slow trip characteristic, typically 2 x Rated Current for 50 seconds or so, 4 x for about 8 seconds, 6 x for about 4 seconds and 10 x for nearly 2 seconds. If it was a breaker and was rated at say 10A, that could be passing 40A for 8 seconds or even 100A for 2 seconds which is plenty enough to turn the powerboard into an electric BBQ! Chances are the circuit board traces went up before the MOV and it may well have been the resulting fire that did most of the damage, not damage to the MOV may have been secondary to the PCB traces vaporising.
Actually I've collected a few fairly spectacular failures over the years, maybe we could start a new thread of spectacular failures. :)