That's right, Melody.
If it's unchecked it shouldn't be affecting the way you're posting smilies.

I looked around on some vBulletin boards for similar issues. I actually had no luck with finding the problem. I had some weird glitch the other day and I posted about it in the main Community Feedback forum. I am not really sure how I fixed it but did shut down a couple times and cleared everything out like the cache.

Have you just tried logging out, shutting down and clearing cache and see if it is still happening?

I'm sorry I can't help with this anymore. I just don't know why it would be happening if you have all your settings right and as you usually do.

What happens if you try to click on where it shows the icons at the top of the message box... where it shows B I U etc. Do they work at all or is it just the Smilies?