Jumping in near the end of this one but thought I'd add my two cents, apologies if the below has been raised. I'd have to agree that selecting Smith would set a dangerous precedent and the ARU need to come out publicly, draw a line under this and say what the protocol will be if this arises in the future.
Personally I wouldn't bend the rules for Smith, I could understand if this was a position where Australia didn't have much world class talent(eg tighthead ,lock) or he was the only 7 available. However you guys have two other young, hugely talented blokes who, lets be fair, would walk onto the Lions team. What message does it send to them if Smith is parachuted in ahead of them for 3 test matches but come the time when BNZ/SA rock up they are number 1. Getting rid of 2 of the 3 amigos would have helped the morale in the Wallaby dressing room, however this selection could have some blokes questioning the fairness of it which could lead to it becoming a serious issue in the camp.