I use this one I found in the scrapbooking section:
Creative Versa-Tool™ Points

I waited until they had a coupon and picked it up then. They also have one that is very similar but not the same brand name, still works just as well.

I also made a little dimmer switch/plug so I can vary the heat so it doesn't get as hot and is a little better for control. As for the fumes, it doesn't give off as much as you would think but I do recommend you have a ventilated area (I open a window in the room).

When I refer to it as a hot knife, it is the blade that I use for the tip. It is the same as an x-acto blade except it has a threaded end that you can change out for another tip and is heated.