Units that use missiles as their primary AT weapon are limited in ammo. This means that Dragon squads, or LAV-TOWs, etc., will usually run out of ammo. Smoke is the way to go here. Urban warfare is very costly, as the Germans found out in Stalingrad. Use mortars to lay smoke in the enemy hex as well as in approaching hexes and you should have greater success.
Mortars seem to have no effect on enemies entrenched in cities.
This is consistent. Mortars basically work by throwing out lots of shrapnel, which has great effect on infantry in the open, but less effect on infantry under cover, unless it lands directly on top of them. Use the mortars to lay smoke instead. We're all here and eager to give you the best info we can, feel free to ask any other questions you might have about play.