Am I losing the plot somewhere?
Yes!
Using the standard text editor, the smilies appear as text in the message box. To see the smilies as they will appear in the final post, use the Preview Post button below.
Note that this is also true of
bold,
italic,
colour etc. - you will only see the "tags" in the message box, but the desired effect will appear in the Preview or the final post.
You could also try using the enhanced WYSIWYG editor (user CP, Edit Options).
SD