Moxie Makes Stuff

This post is only half-correct. No shade to OP, of course - the fireballs are indeed pulling from a different set of graphics, and they're clearly turning into a jumble of letters, so this is the most logical explanation based on the information given.

However, the text boxes in SMW do not use sprite tiles. Text boxes are rendered on Layer 3, using a different set of compressed graphics that are almost always loaded into memory. This means text boxes can be displayed in any level without breaking, including ones where Yoshi can spit fireballs!

So where's that text coming from??

Let's look at where the fireball graphics are pulled from! In an average level, this set of graphics is loaded into a particular slot:

The only levels I could find without these graphics were castles and ghost houses (which Yoshi can't enter normally)... and the Switch Palace rooms!

The rooms with the big coloured switches in them have these graphics loaded into that slot instead. These are the graphics used when you defeat Bowser at the end of the game - you can see Princess Peach, as well as the specific lettering used for the final text box (which is not rendered the same way as the average message)

And that's because of this single tile:

This graphics page also has the tile for the big switch, after it's been pressed and squashed downwards.

That's it! It's just the switch! They could've put that tile anywhere else, and it would've looked completely different!

As a side note, I also found that in those switch rooms, they have this file loaded into a sprite slot.

This page is always loaded into one of the tileset slots, so certain blocks like pipes, turn blocks, and coloured switch blocks can be used in any level. But it's also loaded as a sprite in these rooms, so they can display the switch blocks and outlines in the text box (note that in the footage above Mario passes in front of the text, but behind the red switch block).

In theory, you could rework this so that the pressed-switch graphics are loaded into a different slot, copy the switch block graphics into an unused section of graphics, and have the whole system work while not messing up the fireballs at all!!

Sorry if that was a long rant about nothing, but I really find these sorts of things fascinating. It's like taking a peek into the developers minds, seeing what choices they made to make this game work!

For example, I imagine they didn't do the "solution" I described above because if they used the same file as the regular tileset graphics, they could guarantee that the blocks in the message would look identical to the blocks in the levels, even if they were changed later down the line. SMW's art went through a lot of revisions, so making this particular choice means one less asset to update if anything changed.