Using Brad Choate's MTMacro plugin I've enabled smilies on this site
All I did was install the plugin as per the instructions, and then put a bunch of smilies inside a smilies folder (inside my icons folder).
Then I inserted this code into the head of each template (and repeated it with modifications for each different smiley):
<MTMacroDefine name="smiley1" string="">
<img src="<$MTBlogURL$>icons/smilies/biggrin.gif"
alt="" />
</MTMacroDefine>
Very nice