My beef is at the control level .. the smoothstepper as it cannot manipulate the g-code correctly
The SmoothStepper or any other motion control device that works with Mach DOES NOT interpret or manipulate the G-code, Mach ALWAYS does that. Mach's planner interprets the G-Code and breaks every movement down into the itty-bitty movements that needs to take place between each clock cycle; by clock cycle I am referring to the 'kernel' rate on the parallel port drive and the 'Controller Frequency' and 'Max Step Frequency' in the SmoothStepper configuration. In the SmoothStepper you can think of the 'Max Step Frequency' as sort of a kernel frequency that you can assign per axis. Just like with the parallel port driver, the steps/unit and max velocity determine the frequency needed.
In either case lets say you are starting from 0,0,0 and have a 'G0 X0.1234'; Mach will break that distance down into the small bits that need to be moved to each clock cycle (accounting for acceleration, deceleration and velocity, steps/unit). If your using the LPT driver then this clock is the kernel frequency, for the SmoothStepper is a combination of the 'Controller Frequency' and 'Max Step Frequency' as mentioned above. In some case breaking down a movement into all of these little steps leads to very minute rounding errors in the axis DRO. Since Mach runs a sort of cumulative axis DRO this is not an actual error as if it could not break a move down into an even number for display purposes the next move will be calculated properly, so any single step will be taken up on the next move. A crude analogy would be typing '1/3' into a calculator. You'll get 0.33333333...which we would just say is '0.3333' but if you type '2/3' you will get '0.666666666...' which we would say is '0.6667'.
If on the SmoothStepper has its 'Max Step Frequency' set to high for an axis it will limit the output resolution for that axis. You can get an idea of what this frequency should be set to by knowing your steps/unit and max velocity.
Steps/Unit * Units/Min = Steps/Min, Steps/Min / 60 = Steps/Second
This Steps/Second is the needed step frequency for that Axis, you should set the SmoothStepper 'Max Step Fequency' to the lowest value that is equal to or greater than your Steps/Second. Once you get all your axis' 'Max Step Frequency' set, adjust the 'Controller Frequency' to the lowest value that proved Smooth movement, the note of the SmoothStepper configuration page says higher settings will limit resolution.
So no, there is not a 'problem' with the SmoothStepper. Your worried about a non cumulative rounding error (i.e. display issue) that is in the ones column of your steps/unit (i.e. in the noise anyhow). It's possible that by properly adjusting the SmoothStepper it will go away, but as has been mentioned numerous times your getting all worked up over a display issue, not a positional issue.