Headlight short

The rheostat is for the dash lights only.
However the same rotation handles the grounding switch for the interior lights (dome light).
The headlights are on a 15 amp internal breaker.
The other lights are fused (20 amp shared fuse IIRC)
If it smoked with headlights on, I'd suspect the B1 feed connection.

At this point I'd remove the headlight switch (a PIA but it must be done) and identify what got cooked.
You will probably have to repair or replace the connector and some terminals.

I've posted pics of this connector melted at the B1 on my Barracuda. IIRC Dana has also posted some pics (also '67)
Search for melted headlight connector and filter using my screen name.

edit here's a couple
https://www.forabodiesonly.com/mopar/threads/headlight-issue.490813/#post-1973445447
https://www.forabodiesonly.com/mopa...nector-recommendations.459470/post-1972917142