Smart Tags are embedded COM objects that appear as little icons in your Office documents. Clicking on the icons brings up a context-sensitive list of actions that you can select. Smart Tags are programmable and extensible using the Office XP Developer Kit, and I suspect that they will have interesting business applications. I found the Smart Tags icon appearing and disappearing within my documents to be annoying. But at least this icon wasn't smiling, winking, and bouncing around.
People expect it to look and smell the same.
The most helpful aspect of Office XP is that its feature set is substantially similar to Office 2000. Most basic functions in Office XP were where I expected them to be in Office 2000. That familiarity, which Microsoft is famous for building upon, release after release, is really what keeps Office useable.