Trane Heat pump capacitor exploded! HVAC techs please chime in!

[is350ty]

My 12 year old Trane XE1200 heat pump stopped working the other week, and it would trip the breaker everytime i reset the breaker.

I called in a HVAC tech from the local yellowpages, and they could not find the problem after replacing a bunch of parts (t-stat, therm, defrost board, capacitors), and did some rewiring. So i called in my friend / HVAC tech to diagnose the problem, and he was looking at the wiring at the heat pump unit. He replaced the contactor, but it would still trip the breaker. He then saw the two wires (red and black, thick) coming out of the unit (maybe the compressor or fan?) that connects to the contactor.

It is a 2 pole contactor. The black wire coming from inside the unit attaches to pole #1 on the Terminal side, and the red wire attaches to pole # 2 on the Low side.

He removed the red wire from the low side on pole # 1 of the contactor, and pressed the test button on the contactor, and the unit started! I went to feel the heat registers indoors and they were very hot (hotter than aux heat alone, so i know the heat pump was working). Thinking he somehow fixed it (by removing a wire?) we went back outside, and we noticed the motor capacitor starting to smoke, and it literally exploded. It was a tight roll of paper inside that popped out.

Now, he said he will come back next time, but does anyone know what the exact problem woudl be? Could it be a bad capacitors ? He suggested that the compressor could be the problem, but why would there still be heat when the unit was on?