There was an article in FSM where a guy did just that - used shredded cotton balls wrapped around a wire armature to lift an 1/72 Me-163 off the ground at the moment of takeoff - looked pretty good - I'd think the finer the cotton balls, the more realistic the smoke. Have a look in the FSM index for the month/year and have a look at the article - it would be a good source for tips on painting the different colors of the exhaust.
Don't forget the steam vent as well.
Cheers, Lee Tree