[PatK]

Does the Smart Playlist rely on the library

Yes, exclusively so if it's not in the library, search or smart  playlists will find nothing. With library listings, your smart playlist with a path rule will work and handle new subfolders and add any new files that it finds to the playlist, and removes any that have been removed. "should it (be able to) work over SMB?" as long as the videos are scraped in as part of the library and be available, should work.