I’ve just installed Donncha’s Smarty patch on top of my 1.2 install of wordpress. To get it working properly, though, I had to then download a fresh install of Smarty and install it.
Make sure to edit the wp-includes/class-smarty.php such that it is pointing to the correct location of your installed Smarty.
Apart from that, there were just a few permissions changes to make. When you see permissions errors, just either chmod 777 (the easy way, but slightly insecure) the directory mentioned, or chmod 755 (recommended!) the directory and chown it to either apache or httpd (or whatever – the webserver user).
There are still some glitches to work out, but I’ll get them later.