Preheat a smoker to 250°F. Use a mild wood such as oak or pecan for a balanced smoky flavor.
In a small bowl, stir together the shredded cheddar and diced jalapeño. Set the filling aside.
In a large bowl, combine the ground beef, egg, breadcrumbs, milk, diced onion, garlic powder, smoked paprika, salt, black pepper, and 2 tablespoons of the barbecue sauce. Mix gently until just combined.
Place a large piece of parchment on the counter. Pat about two-thirds of the meat mixture into a rectangle about 1 inch thick. Spoon the cheddar-jalapeño mixture down the center, leaving a border around the edges.
Shape the remaining meat mixture over the filling. Pinch the edges and ends together, then smooth the loaf so the cheese is fully enclosed.
Set the meatloaf on a rack or smoker-safe pan. Smoke until the center reaches 155°F, then brush the top with the remaining 2 tablespoons of barbecue sauce.
Continue smoking until the center reaches 160°F. Rest the loaf for 10 minutes before slicing so the cheese has time to settle inside.