Menen, It's a good point you make.
This was the procedure taught to me during my JAA CPL training which was conducted in a PA28R-200 (Piper Arrow).
The logic is that it is a case of prioritising the risks, and the risk of the aircraft being consumed by fire in the air is of more critical importance than turning towards the ideal landing area.
If the landing field is on the left and the smoke / fire is coming from the left, then by turning left (whether sideslipping or not) would direct the relative air flow towards the fire, and thus into the cowling and towards the source of fuel.
Turns to the right, however, will direct the relative airflow into the cowling from the opposite side of the fire, and thus tend to blow the flames away from the source of fuel towards the outside of the aircraft.
In practice this might, (for example), mean the difference between making a right hand circuit for a landing as opposed to the normal left hand traffic pattern, so it may not be as fundamentally against standard airmanship as it first appears.
But, the priority with a fire is to land as rapidly as possible. So the selection of a field would logically be a lot closer than one might select if the engine just stopped for no apparent reason. In fact, an emergency spiral descent, making turns away from the fire might be considered the most appropriate, keeping the turns tight to keep the field in close proximity.
In general, (subject again to the POH), an emergency descent procedure does not involve a sideslip, (unless perhaps to make the threshold when on a high final approach), but rather Extension of gear and full flap below Vlo and Vfe, and then pitching to maintain Vfe while making steep turns.
This would satisfy the requirement to lose altitude rapidly, keeping in proximity of your intended landing area, while using the relative airflow to keep the fire outside of the aircraft.
I would agree, however, (and said so at the start of my previous post), that the POH or (Company Operations Manual) would define the exact procedure to be used for your type of aircraft. However, turns away from the source of fire are fairly standard emergency drills, and I have seen them taught quite commonly.
However I would say, one of the core skills a student pilot needs to acquire is the ability to prioritise risks in the face of each particular emergency, in order to reach the appropriate decisions at the time. Given the choice of landing at a Tarmac airfield 1 mile to my left, (with attendant fire services), or the ploughed field below, I would have to carefully assess my options. In the case of a severe engine fire, with visible flames, I think the ploughed field may certainly be worth considering. In the case of smoke, but no visible flames, perhaps I would be tempted to go for the airfield while making turns opposite to the side the smoke is coming from.
This is why computers will never replace pilots in the cockpit.
I note your further comments regarding stuck fuel valves, and agree with you that the aircraft should not be in the air in the first place if that were the case. Good pre-flight checks should pick up these sort of things, and if experienced yourself in flight should definately be written up.
Aces Low, I was referring to landings at a regular airfield, so the 500ft rule would apply vertically. You are right with respect to "green field" PFLs, but remember that a fence is a structure, so it would have to be a big field! In general, given your warnings about obstacles during the climbout, I think it good aviation practice to go around at 500'. As far as examiners are concerned, then the student should express his intention to go around by 500ft to demonstrate his knowledge. If the examiner overrides it, so be it.