I'm not entirely certain whether this is a bug or not, but smoke bombs don't seem to have much effect. I've only tried them twice, in the Howling Peaks, with Drenn. The first time, no mobs were in the area, he was hidden, and THREW the bomb; it gave the echo "You throw the bomb on the ground and it explodes." Then he moved to an adjacent room; the mobs auto-attacked, implying that his hidden flag had been stripped by the action. He THREW a second bomb while fighting, but it had the same effect--an echo and nothing else.
I'm not sure if it's supposed to have an effect or not, but for the price I paid for them(either 4 or 6 platinum apiece in the Gondar temple in Tantras, it's been a while...), I'd have expected them to be a bit more impressive.
I might have been using them wrong, or it could be a bug. I'm not sure.