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I am not certain I follow the logic behind Smashwords - but note that I am looking at this as a total outsider (so far). Let me see if I have this straight...
The writer writes their novel (or whatever) using Word (or whatever) and is careful to get everything exactly as the writer wants it to be - perhaps exporting out to epub (or whatever) every now and then to see if it is all working.
Then, when everything is done and is looking just right, the writer is supposed to strip out all that careful formatting (smart-quotes, em-dash, bullet points, etc. etc.) and upload this essentially plain text file up to Smashwords.
Smashwords will then, if the few examples I've found are anything to go by, execute an automatic process that puts some of your original formatting (smart-quotes etc. etc.) back in to the final document.
The main difference between the writer's original epub and the smashwords' epub is that the original was carefully crafted for a specific result, while the second is automatically generated based on some fixed set of, one-size fits everyone, rules.
I have a little difficulty seeing that a writer supplied epub (which is probably produced using a software automation process rather than hand-coded, and so the format is likely to be highly consistent), could possibly produce a worse result than the tortuous process already in place. If they can already parse Word documents to reject all those things they don't like, it doesn't seem like it should be beyond them to reject epubs that don't fit within some reasonable criteria.
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