Blending to only affect one layer (CS6).

[ALB68]

You could but to what advantage?

Regards.
MrTom.

I must admit I am not well versed in smart objects. However, my thought would be that the smart object can be in another place in addition to being in the working document. It could then be edited by someone without being in the working document and the changes would reflect there if there was a reason to do so. That's all.

 

[MrToM]

LOL....so exactly what I said then?

Embedding an external file becomes a smart object anyway, not that it needs to be in this case but that's what happens.
I don't see the need for just the 'smoke' layer in that external PSD file to also be a smart object...unless you know of an advantage?

I only offered embedding as a less 'hackish' solution as the OP expressed a dislike for the easier 'copy merged' & paste method.

Regards.
MrTom.