Yes the ship caught fire & burned into a hulk due to the Brits not being up to speed on damage control / fire fighting.
It also didn’t help that the ship was full of modern plastic materials (upholstery, insulation, cable coatings, etc.) that, when burned, give off very toxic gases. The Brits were not prepared to deal with them. And frankly, neither was the US Navy, who, subsequent to the Falkands War, instigated a major ship refit program to get the materials out of USN ships. However, with the number of ships to be retrofitted, this effort took some time. IIRC, toxic gas from burning plastics also made fighting the fires aboard the USS Stark in 1987 (http://search.aol.com/aol/search?query=USS+Stark&s_it=client_searchbox) difficult as well.
One of the last photographs of the Sheffield shows the ship burnt out from stem to stern with the surviving crew mustered aft on the helo flight deck waiting to be evacuated. Very sad end for a gallant ship.