There are some cases in which the protection of smoke is inadequate. Juku already mentioned some, for example, enemies with heat vision.
Smoke still works most of the time, as heat vision is not end-all for smoke tactics.
Dog-level heat vision is not particularly effective, is it? And that's what most enemies with heat vision have. Whereas you can roll with rats, scout drones, or even bats. Sectopods completely disregard smoke, but their posse usually don't.
Psi-sense isn't end-all either. Sectoids are easily fooled with smoke. Ethereals - not so much (works over really long, 20+ tiles, distances).
The real kryptonite to `smoke + distance` defence are AOE attacks. 50% accuracy debuff is not enough to protect you against EXALT grenadiers.
In many missions there are buildings at least 3 levels high. I think in some cases (e.g. a building is close enough) enemies could see your guys over the smoke.
I tested with debug mode how far away RD pioneer sees my armored vest guy in mortar shell smoke, after it diffused for a couple turns, at daytime.
On ground (height 0), he's seen from 4 tiles away from East: XxxxxR
At height 1 : same, 4 tiles. At height 2: 6 tiles. H3 : 6, H4: 8, H5: 9, H6: 10 ... H10: ~14.
So yes, height allows to see units a bit farther through smoke. But it depends how exactly did the smoke diffuse - in some cases, like close to walls, I wasn't able to get viewing distance less than 8 tiles at H10, compared to 14 of previous example. And in some cases viewing target from the north instead of east/etc., adds/subtracts 1-2 tiles of visibility.
I didn't test the reverse visibility though - will the x-com guy on the ground see floating enemy farther away?
In practice, however, manor attacks were the only case for me when it felt like building height was the issue - I wasn't ever able to "safely" sit in smoke there, always being swarmed with enemies. Floaters did surprise me a couple of times, but were quickly dealt with. Something like 3-tile high lab ships were never a problem.
Spoiler offtopic:
Or an incendiary and the kill got attributed to 'burning' and thus you may get spotted a turn later when the victim dies, or never if someone else shot the burning fella in the meantime.
Incendiary has 3 damage components to it - basic explosion, fire status effect, and terrain damage, so I guess terrain kill attribution can happen. However, when I can't afford risks, to be on safe side, I would always just assume that it was my guy who it was attributed to. Same with all your so-called 'deciphering'. That's why it's quite simple matter.
In any case, 'seen' visibility hasn't been the problem here, so while valid, this is not a particularly topical criticism of the "smoke&nade" strategy.
And if I don't get it in a somewhat controlled experiment, an actual mission is going to be a lot harder to decipher.
...Shoulda tried actual mission?
In that case I don't know how I got some incendiary kills to get me spotted for snipers. Maybe I was not quite as isolated from sight as I thought, maybe I misread the files, maybe some other issue.
One of these, yes.