Well, this specific case is covered in detail in the User's Guide, and it's also explained in the "What's going to happen?" section of the UI: Smart Update makes the destination exactly match the selections from the source, and it's just like an erase-then-copy, but faster.
As such, pretend you erased the drive and then copied your user files... and that's the result.
You should always use "Backup - all files". It won't copy files that haven't changed.
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--Dave Nanian
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