YEs, you are mistaken. The velcro was supposed to be limited to small patches with some separation as to prevent fire from propagating from one patch to the next if it caught fire. But it was so useful that they more-or-less carpeted the interior with it.
Teflon was implicated in the initiation of the fire, since it cold-flows and can cause shorts, and start the fire. Once it gets going, particularly in nearly 17 psia pure oxygen (vice the in-flight 5 psia), the velcro practically explodes.
Had the same fire started in-flight there was a remote possibility that they could have vented the cabin and put it out, and maybe survived, but the high pressure on the ground, not a chance, even aluminum can burn in those circumstances and the only reason it didn't was because the capsule burst from over-pressure before it got going.