So the the third photo is with the melamine cabinet removed? If so, you are so lucky to have found it now. That old outlet looks like it was shorting. Major fire hazard there. What does the back of the cabinet look like?
The old outlet should never have been buried like that. I’m not an electrician but my understanding is that the outlet should have been removed, the wires properly terminated (with caps or the like), the box covered with a plate cover, then the back of the cabinet should have had a hole cut into it so access to the cover was still possible with the cabinet in place.
Plus: what’s the deal with the blue box? Was it never properly attached to the wall? Did the original installer mis-cut the cabinet hole and instead improperly add a new box?