Yeah - I'm a technician, and I've seen it on many an occasion. Sometimes you can just clear the fragments out and it works, sometimes not. I've had cases where bits of cd havew been embedded in other parts of the drive case! I've also had more than one case where the front of a drive is missing (either the facia on the front of the tray, or the drop-down bit on hinged-front drives), so if a CD blew in one of these - there's a high chance of bits of it ending up around the room. I suppose it would be the hinged-front types that would be the most dangerous, as a high-speed fragment could easily blow its way out through one of those :-o.
Incidentally - most software companies (including M$) will replace media that gets damaged in this way for a nominal fee, or even for free if you make out that it was defective.
The main cause of noise in drives is discs that are not spinning totlly flat. This can be due to a warped disc, a crappy drive mechinism, a badly centred label (though this would probably hold the thing together) or a combination of them all.
But! Have you heard the BANG it makes when it happens?

Man! me and several other people in the room almost had a pants-based accident when the last one went!