United missed four times in a penalty shoot-out as they slipped to defeat in their opening Manchester Senior Cup tie.
Brian McClair's side were unfortunate not to win in normal time, having led through Aaron Burns' first-half strike until the 85th minute.
United enjoyed the majority of possession throughout the match, with Smith heavily involved in the majority of their promising attacks.
The England striker looked lively in tandem with Burns, and completed 90 minutes for the second time in five days.
It was Smith who almost opened the scoring inside a minute, drawing a good reaction save from County keeper Tim Deasy.
His heroics were bettered by United counterpart Tom Heaton shortly afterwards as the Reds stopper turned Adam Le Fondre's close-range header over the bar.
Smith set up David Jones inside the box, only for the midfielder to drag his shot wide, before Burns opened the scoring five minutes before the interval.
The strike duo linked up well before Burns fired expertly past Deasy to give United the lead their possession deserved.
For all their promising play in the first 45, United failed to match their exertions in the second period, and County came more into the game.
Twice Heaton was called upon to make fine saves, before the hosts drew level on 85 minutes through Chris Coward's low shot.
David Jones hit the top of the crossbar a minute before the final whistle but, without extra time, penalties were to determine the winner.
Deasy emerged as the hero for County, turning away kicks from David Jones, Danny Rose and Ritchie Jones, while Smith hit his effort wide of the target.
Although Heaton made a fine save from Damien Allen with County 2-0 ahead, successful penalties from Coward and Mark Robinson gave the hosts the win.
United: Heaton, Lee, Rose, Shawcross, R Jones, D Jones, Barnes, Ngalula Cathcart, 46), Smith, Burns (Marsh, 75), Evans.
Substitutes: Zieler, Lea.http://www.manutd.com/default.sps?pagegid=%7BB4CEE8FA%2D9A47%2D47BC%2DB069%2D3F7A2F35DB70%7D&newsid=360761
