Sorry, Dennis... I could not easily resolve the problem.
The code that is supposed to be there for converting the codes to html link is simply NOT THERE. It is like the mod is not properly installed. However, parts of it are obviously installed (smilies to the left of the message window and the admin features).
Since the mod is partially installed already, I did not feel comfortable reinstalling it on top of what is there. I would recommend you do this. Try uninstalling it first though. After you do this, I can take another look at it. I do not think that the database table for the smilies will be deleted, so you won't have to redo the work you have done in getting the smilies into the database.