This has been tested and the synergy confirmed to work. I'm not sure why the character screen display is inaccurate for Smite.
The
test I ran is pretty easy to reproduce by yourself:
1) Edit the shortcut (or Hell Unleashed.bat) that starts HU using a simple editor like Notepad. Look for the line containing "Diablo II.exe", and add -act5 to it. This new option will make all new single-player characters start at level 33 in Act5 (use the waypoint to get to rogue camp).
For example, change:
"Diablo II.exe" -direct -txt
To:
"Diablo II.exe" -direct -txt -act5
2) Start up HU using that shortcut, and make a new Paladin. Give him just enough Strength and Dexterity to equip his default shield, and plenty of Energy (so he has around 100 MP), now give him 1 point into Smite.
3) In Blood Moor, smite several Zombies to death, taking a note of how many Smites it takes to kill one (I'd guess 4-6).
4) Put 20 skill points into Defiance, noting that there is no difference in the char screen damage as expected. In theory, Smite now has 4 times the damage, so if a Zombie took 4 hits to kill earlier, then you should kill it in 1 while 8 hits now would take 2.
5) Repeat step (3). I'd guess that Zombies now die in about 1-2 hits, which I would consider proof that the synergy is working.