While you keep on adding text that would create smiley images on the posts when displayed on front-end, but the text like ‘:)’ is not getting converted to 🙂 , then there is some issue, either with the settings or with the way you enter the text in post content in editor or the comment text area.
In case Smilies added to the content or comment text do not work on your WordPress blog installation, here is the troubleshooting checklist:
In most of the cases, the ‘Smilies’ feature is disabled thru the settings. Check if that is the issue for you.
The images for the smilies are present in /wp-includes/images/smilies directory of your WordPress root installation. The file names are like icon_smile.gif, icon_cry.gif and so on. Just check if these images for the respective emoticon exist in the folder.
If not, just upload the images to this folder.
You should type a space before and after your smiley text. Otherwise the WordPress formatter will think that it is a normal text within the content and will not convert it to image while displaying on front-end 😉