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Seems to be running pretty well! It does have a sound similar to the hit-and-miss engines I've seen at Cabin Fever and Rough and Tumble, so you have definitely succeeded in that regard. I found a schematic of the Arduino Nano, and it looks like it uses an LM1117 regulator, with no input capacitor or other stabilization and protection of the input. It can handle 20V but there is no filtering to handle spikes, and that's probably why it was damaged.http://download.arduino.org/products/NANO/Arduino%20Nano-Rev3.2-SCH.pdfThe regulator:http://www.ti.com/lit/ds/symlink/lm1117.pdfThe design notes recommend a 10 uF tantalum capacitor on the input, and as much as 100 uF on the output. The Arduino schematic shows three 1 uF capacitors and one 4.7 uF on the 5V line. If you want to be able to use the circuit on a single 12V supply (such as a battery), and want to protect against spikes, it may be good to add a small inductor (perhaps 500 uH to 10 mH) as well as the recommended 10 uF capacitor. It's probably not necessary to use tantalum, but it should be a low ESR type, like ceramic multilayer.