Er. I may be missing something here, but isn't it smoke me a kipper?

You are. It's Arnold's first attempt at being/becoming Ace. He stumbles over the phrase, and the "old" Ace tells him he was once like him too, and "there's an Ace inside you, too" (Lister/Cat, I can't remember which: "Yeah, so deep he's been buried..." or something to that effect).