This is one of the most annoying and long-lasting bugs in iTunes. It is remarkable that Apple has yet to take it seriously. However, there is a solution, if you're ready to endure some pain.
This bug has afflicted my iphone a couple of times now and it seems to occur whenever I attempt to make changes to my iTunes library during a sync operation. A common symptom that this bug has occurred is that several random songs in the library will mysteriously lose their file associations and need to be manually re-associated. From this point on, any new smart playlists created in iTunes will not sync to the iphone. Nada. Nothing. Zip. Not even toggling the 'live updating' setting will make any difference. Sure you can create a new smart playlist and then copy the contents into a standard playlist (which will sync to the phone), but that seems to defeat the purpose of the "smart" playlist.
This bug seems to be related to some kind of corruption in the iTunes library database files. The only sure-fire way to repair it is to wipe both your phone and itunes and then restore both of them, using the following procedure.
0) Use any in-app backup options to save app data for any and all of your purchased apps.
1) Sync phone, this will create a back up of the device
2) uninstall itunes
3) rename the itunes folder under "..\my documents\my music\" to something like "itunes_old" this will disassociate the old library from itunes. THIS IS THE KEY STEP IN THE PROCESS.
4) re-install itunes.
5) import all the music, videos, podcasts, ringtones, etc from the old (now renamed) itunes folder.
6) restore the iphone from backup and then resync.
7) restore data to any apps using available in-app backup routines.
This procedure does work to fix the smart playlist problem (at least until it reappears), but it will also cause a few other problems. First, your podcasts may have to be imported again, meaning you'll probably have lost their viewing history. Second, not all apps store their data in the backup file during the sync operation or provide an in-app backup routine, so some apps may lose all stored information.