Manjunath, first off that filter is located at a place where its more likey to be hot. If you observe the original air box, you will see that the the intake pipe is routed so that it opens very close to the left or right corner. That's because its from there that the coolest air can be drawn in. This particular setup is in fact detrimental to performance/mileage since the already hot air will be less dense which simply means that for a given throttle position the engine will burn richer to gain the corresponding RPM.
Secondly since the filter is located in a hot area, there is some chance of the plastic parts in it melting or getting deformed. If there are particles upstream (i.e., towards the engine intake) there are chances of these getting sucked into the intake causing unnecessary burnt particles in the engine. This is both bad for the engine and also the oil will blacken faster. As you said that you observed some powder-like deposits, this could be it.
Personally, I'm not a fan of all these gizmos...they cost a bomb but do absolutely nothing (one dealer quoted me Rs. 3000+ for a K & N air filter claiming that it will last 1 lac miles...phhht!!!). The claimed improvement is only in their minds...reality is quite different (see here, scroll down to "High-flow filters"). Besides ECU based engines cannot be coaxed into performing better simply by changing the filter or even putting a cold air and/or forced induction kit. The ECU will always burn fuel based on its map so any advantage due to these is effectively nullified UNLESS the ECU too is remapped accordingly.
S = k.I^2, where S is the amount of stupidity a species possesses, I is the intelligence the species has and k is the universal constant of stupidity.
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