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Sudden AC malfunction



E28

I depressed the A/C switch and heard what I thought was the compressor
activate.  The fan did not come on with the A/C.  
The external blower only runs when the A/C switch is OFF.  
Pressing the A/C switch while the fan is on makes the fan turn off.  
Fuse 17 is charred beyond belief, but not blown.  Replacing the fuse did not
help.  
The plastic on the fusebox case beneath the fuse is melted partially.
I am completely lost on this one.  Any help would be greatly appreciated.

Thanks,
Travis, '85 535i, 173,000