Does this mean i need to upgrade my exhaust system imediately ?

is there already damage done to the engine?

There was smoke coming from the passenger side of the engine, im not sure if it has to do with the exhaust but, its a rough burning smell, kind of like oil or rubber

i think it oculd be because the rubber lining inside the wheel well, well theres a bolt that keeps it in palce, but its loose so it could be the tire rubbing against it, but i don't think it could produce that much smoke.

it wasn't a lot of smoke but it smells really rough (my dad was driving up a hill, showing me various scenarious i could run into and how to clutch properly and such)

 

The exhaust overheat light means that temps in your main cat have gotten too high. Do you have a downpipe? Your turbos might be leaking and sending oil down the tube............ How many miles on the car?

 

Clogged precat or main cat would be most likely reason.

If your fender is getting burnt or melted by the exhaust piping, get it fixed or remove it before something sets on fire.

 

60k miles, no its not getting burned by the piping i don't think but it probably is a clogged cat, but i noticed some oil leaking under the car, could that have something to do with it?

 

most likely. I had an oil leak and my overheat light came on also. Fixed the leak and no more light.

 

The smoke from your passenger's side of the engine could be...

a) your turbo

b) the pre cat

c) the coupling on your IC hose connected to the Y-pipe is loose/torn and is dripping oil onto the hot manifold

Or it can either be that the car was never driven really hard (such as the case with mine)...and after a long time of soft driving you run it hard the turbo's start to smoke a bit...my car was never driven hard and everything was so tight...it shouldn't be too bad

Oh yeah your oil drips may be the 2 rings under your oil filter are bad...very cheap to fix