If you are using nice URIs you also have to comment out $whichcat .= get_category_children($cat, " OR category_id = "); under the // Category stuff for nice URIs part
Indeed, I agree with dille, including (getter) functions that return would make smarty support possible and give people the choice. I like the wordpress design a lot, but to nicely integrate it in my websites I would like to use smarty like on the rest of my pages.