Smoke's only made of vapor when he wants to be. It's more like when Smoke died as a kid, his human body was possessed by the smoke demon. So he can exercise his demon-powers by temporarily transforming into smoke and back, but his natural, relaxed state is to be stuck in a solid, fleshy human form.

And that human form was automated by the Lin Kuei the same way Sektor and Cyrax were.

And it's canon that automation makes you lose your natural powers. Probably because cyberninjas lose their souls (or their souls are suppressed until they regain their free will) and thus, lose their internal chi energy.

All of the cyberninjas have nanobots as a healing/immune system, because metal doesn't heal itself like flesh does, so they have to have nanites that act like the machine-version of white blood cells, and flow to the "wound" and repair it.

Smoke has extra nanobots that he shoots smoke-like clouds of or transforms into a swarm of, to replace the Enenra powers he lost. And then his nanotech was transformed into something more demonic and Enenra-LIKE, when the Netherealm affected/corrupted him in Deception, his nanites ran wild, and turned him into a walking cloud-man.

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As far as how the "Noob wanted to make more cyber-demons" thing works...well, the first thing you need to know about nanobots is one of the chief appeals of them/fears about them (depending on your perspective) in real world science is the idea that they could be invented and designed to self-replicate, meaning they could chew up nearby resources and use them to build copies of themselves. (This, obviously, is probably HOW they turned Smoke's body into a walking cloud of nanites.)

So for example, watch how the Borg assimilate people in Star Trek. They shoot tubes into their necks and pump them full of nanobots and the nanobots spread throughout their body and turn their organic parts into synthetic parts, including their brains, which become computerized and programmed to follow a set of orders. (In the case of MK, computers programmed to follow Noob's orders.)

To insiders there was primeval techniques that incorporated manipulation of atoms that were passed down from primordial Lin Kuei. They updated their studies in phases and were way before their time, even long ago. They never ever made this noticeable to society though. When errands started becoming more demanding, it was only then that principals began turning devoted members in to androids.

Thanks to everyone who responded! You're very knowledgable Razor in the MK Lore, that I've noticed with your posts. I kind of liked the walking cloud man outfit for Smoke, it made him look creepy. I saw that costume in the MK 9 artbook just for show.