There is one feature of Smarty that is worth having in my opinion, that is the template inheritance. Basically similar to .NET master pages, Rails layouts and I think Django is built the same way. Much cleaner rather than including header/footer files.
Though I don't like having to use the Smarty psuedo-language, I do like the organization of code that it provides.
PHP is not a HTML template engine. You have to run all your content through library functions to encode and prevent it from being interpreted as markup. That's essentially making your own half-baked template engine from scratch in PHP, and it would be just as easy in any sane language.
Seriously? PHP "was" a template engine. But that was before 1998 when no one knew what was a good idea or a bad idea when it came to building web apps.
I hate PHP and don't even want to talk about it but I did skim through the docs for Smarty. The rationale is that PHP sucks as a template engine, so why not create a new one and use PHP for the model-controller/whatever.
Maybe that seems perverse, but you have stuff like Node.js in existence that oddly enough solves some problems quite nicely, so maybe it works for PHP guys. I'll never see the appeal compared to other languages though.
edit: That being said, the final result looks kind of horrible to me.
Completely unrelated: I'm not easily offended. Right now I'm not offended at all, in case anyone would interpet this post to mean so. I'm all OK. Really.
But that said: I'm severely puzzled about your choice of HN username.
Though I don't like having to use the Smarty psuedo-language, I do like the organization of code that it provides.