"Every trader knows black-scholes doesn't work".

This is getting tiresome. Lets please kill this canard.
Standard Paul Wilmott reference:
http://www.wilmott.com/blogs/paul/index.cfm/2008/4/29/Scienc...

BS is one of the most robust computationally amenable closed-form pricers out there.

What does that mean ?
1. Closed-form computationally amenable:
Most pricers aren't closed form. They require you to evaluate an integral using finite differences or a million montecarlo simulations to trace out paths over a binomial tree. MC introduces huge variance so you need antithetic methods & control variates to damp.
http://en.wikipedia.org/wiki/Antithetic_variates

BS is a simple closed form formula that has been programmed in over 30 languages in like 10 lines of code ( Objective-C/iPhone, F#, Autoit, Fortress, Lua, APL, SAS, Mathcad, J, MEL, Postscript, VB.NET, Clean, Ruby, Lisp, Prolog, PL/SQL, LyME, ColdFusion, K, C#, HP48, Transact SQL, O'Caml, Rebol, Real Basic, Icon, Squeak, Haskell, JAVA , JavaScript, VBA, C++, Perl, Maple, Mathematica, Matlab, S-Plus, IDL, Pascal, Python, Fortran, Scheme, PHP, GNU, gnuplot )

http://www.espenhaug.com/black_scholes.html

2. Incredibly robust:
BS requires very few free params to spit out a ballpark price. That ballpark price is remarkably accurate.
eg. A 3 month at-the-money call should cost
"one-fifth spot times vol. " ( they make us memorize this in class :)

That's it! That's a frequently used Black-Scholes approx.
So call price = S times sigma/5.
So a Cisco September $15 call should be about
15 times 30%/5 = 90 cents.
Guess how much its trading at right now ?
That's right, 88 cents!
See for yourself: http://finance.yahoo.com/q/op?s=CSCO&m=2011-09

Can't get any more robust than that.
It is remarkably accurate ATM, and there are well-known fudge-factors & rules of thumb you can employ as you go deep ITM or deep OTM.

"According to black-scholes the volatility curve should be flat, but it is actually a smile"

Ummm...BS doesn't say anything about a vol curve. It says vol is a single param. A const. A final. So BS assumes vol is constant at all maturities. If you plot a vol curve by graphing vol vs maturities, you will obviously get different shapes in practice. Sometimes you get a smile ( bonds ), other times a skew ( stocks ), other times other weird shapes. Essentially the shape says people prefer ATM options to deep ITM or deep OTM, but obviously prices are dictated by supply-demand, not by some model. So BS is mispricing OTMs & ITMs, but to imply "BS says vol curve should be flat but its not really flat" is backwards. BS assumed vol to be a fixed single param, and any model that assumes vol to change ( say Heston's stochastic local vol ) over maturities will have a really tough time calibrating params for that model. Heston itself requires 5 params...not easy to calibrate.
http://en.wikipedia.org/wiki/Stochastic_volatility

"Believing black-scholes works is like believing the earth is flat."

No its not. 1000 times not.
Believing black-scholes is like believing the earth is a sphere. Is the earth a sphere ? No, its a geoid. ( http://en.wikipedia.org/wiki/Reference_ellipsoid )
But is a sphere a good ballpark approx ? Yeah, a very good one, in fact. Well then, so is BS.