I recall reading that smoke grenades are not functioning in the game at this time. Or, the alien could have just beat the smoke modifier for it's roll. Finally, the smoke may currently be programmed to only block visibility on the same plane, thus the alien shot down at your soldier, where there was no smoke. The AI always knows where you are, even when it's controlled units can't see you. I'm no programmer, and these are just my ideas, but they may at least make you feel better. If it was just one alien, you would have been better to use a flash grenade. I know they at least work fine.