If the internal seals are bad and oil is leaking into to the intake/compression side of the turbo, then yes, that oil can feed into the engine, causing smoke, excessive oil consumption, and other problems. Matt L is right, if you lose so much oil that there's not enough to properly lubricate the engine, you're sunk.

But oil "consumption" can also be caused by many kinds of leaks. How much oil leakage is visible on the engine or ground? Are you sure it's from the turbo?

Turbos are pretty simple devices, mechanically speaking, so a complete failure is pretty hard to achieve. If you remove the intake tube connecting the air filter housing to the front of the turbo and try to spin the shaft (engine off and cold, of course), what happens? How much side to side (radial) and in-out (axial) play is there? How much oil can you see in the compressor housing?