During a Multiplayer game in MP Bridge, several Smoke Screens were laid down by both teams. This covered a large part of the right of the map, which is the "River", a large amount of difficult terrain, as well as some thorns that are about, yet all of these were of no hindrance when the smoke was laid out. I haven't tested this yet on impassable terrain (Shouldn't be possible since that terrain is untargeteable. I know Lava behaves like this but is it intentional that smoke overwrites terrain?
Yes. It is kind of the secret feature of smoke bomb. Terrain types are directly altered by spells such as lava, firewall and smoke bomb, they revert back when the duration is finished.
It doesn't make "sense" but it simplifies the rules if terrain overlays always just replace the underlying terrain. Otherwise, you'd have to check both the overlay and the terrain tile to figure out what was going to happen.
I am okay with this being an interesting way to use Smoke Bomb. I think it's a little bit of a hidden meaning, but looking at the text, it does say "creates Smoke Terrain," so it makes sense with the rules!