Looks like I found the thread I was looking for.
Ron: did you find out was was wrong with his database ? Because I have the exact same problem;
I created a smartlist using the web interface. I can see there are songs in it through the web interface.
ITUNES doesnt see the smart playlist at all, but sees all the files in the library.
XBMC sees both the library and the smart playlist, but there is nothing in them (even the library is empty).
XBMC, june 11th, 2006 release
Nightlies 1206 release running on NSLU2