THE PILOT REPORTED THAT A NORMAL PREFLIGHT AND RUN-UP WERE PERFORMED PRIOR TO THE FLIGHT. WHEN OVER THE DEPARTURE END OF THE RUNWAY DURING TAKEOFF, HE NOTED THAT THE ALTITUDE WAS LOWER AT THAT POINT THAN NORMAL. THE PILOT MADE A LEFT TURN TO RETURN TO THE RUNWAY WHEN THE AIR TRAFFIC CONTROLLER NOTIFIED HIM THAT BLACK SMOKE WAS COMING FROM THE AIRPLANE. THE PILOT CONTINUED THE TURN AND NOTED THAT THE ENGINE WAS RUNNING ROUGH. SHORTLY THEREAFTER, THE ENGINE LOST POWER. A FORCED LANDING WAS MADE OFF THE RUNWAY. DURING THE LANDING ROLL, THE AIRPLANE COLLIDED WITH THE TERRAIN AND A FENCE. INSPECTION OF THE ENGINE REVEALED THAT A SHOP RAG WAS AT THE REAR OF THE CARBURETOR AIR BOX AND WEDGED AGAINST THE GUIDE VANES AT THE TOP OF THE BOX WHERE IT ATTACHED TO THE CARBURETOR. THE AIRPLANE HAD UNDERGONE AN ANNUAL INSPECTION APPRX 24 FLIGHT HOURS PRIOR TO THE ACCIDENT.