There is a lot of hate towards the Smith machine from some camps, with the old joke being that its best use is for something to hang your jacket on. My personal opinion is that it has its uses as part of a well-designed training program, but should not be a staple. While some would say that its bad because it fixes you into a certain plane of motion, I think this is one of its benefits as it allows you to focus almost entirely on the target muscle. The stabilization from ancillary muscles from free-weight exercises make them king, however. And this is something researchers from Cal State in Fullerton, CA wanted to investigate. They did this by looking at a smith bench press and a free-weight bench press where participants pressed 70% and 90% of their one rep max for two reps. The muscles they looked at were the pectoralis major (i.e. chest), and anterior (front) and medial (middle) deltoid muscle heads. Shame they didn’t look at the triceps also as they are also a prime mover for pressing exercises and I’m interested if there is any discrepancy between its involvement in the two exercises.
As expected, the heavier set for both exercises had greater muscle activation (heavier weights generally recruit more muscle fibers), but the main difference between the two exercises was the higher muscle activation found in the medial deltoid head when doing a free-weight bench press. This shows that free-weight movement requires more stabilization and so recruits more muscle fibers (a bit like using a heavier weight does) and is more likely to set up a greater anabolic response.
So in conclusion, design your workout program around free-weight exercises, particularly exercises that move the body through space like chins, dips, squats, deadlifts and clean and jerks. But by all means include some Smith exercises in order to help focus on the target muscle or train around an existing injury (within reason). In the words of the researchers, free-weights are superior “because of [their] potential for greater upper-body muscular development.”
Source: Schick EE, Coburn JW, Brown LE, Judelson DA, Khamoui AV, Tran TT, Uribe BP. A comparison of muscle activation between a Smith machine and free weight bench press. J Strength Cond Res. 2010 Mar;24(3):779-84.