I had the same issue a few weeks ago, Solenoid went bad and starter would keep trying to start the car. It was freakin scary, white smoke and smelled like wires burning. I think a loose bolt on my strut tower brace made contact with solenoid and caused the short. Tightened down tower bolts, Replaced solenoid and sadly also had to replace starter. After replacing both started right up n no problems. All I can think of in your case is there must be a frayed wire somewhere's making a connection, wires on solenoid are misplaced?

 

The starter cable is by itself, small wire is by itself, and everything else shares the other terminal correct?

 

Sounds about right, took a pic for reference

 

Better pic

 

yeah mine looks the same

 

How about the upper part of the starter, Sorry cant remember what it's called
http://images.carparts.com/product_i.../p669162_1.jpg

 

 

My starter doesnt look like that one, it has more of a bulging steel plate instead

 

You have a bad solenoid. Mine did the same thing and it was the solenoid. Pull it out and shake it and see if you can hear something rattleing.

 

Ok took a shot in the dark and went on to buy my 5th solenoid for this car, and voila! It's fixed, I'm quite embarrassed it was this, but I never knew these parts were so unreliable. Hadn't run the car in over a year, haven't driven it more than 100 km's in the last 3 years and it runs like a top, was a sound for soar ears. Why are these solenoids so unreliable?