True. The Brewers could've traded Smith instead of losing him. Yes, the other team would've had to add him to the 40-man roster. This is how we got Hudson last year (kind of similar situation honestly).
If Smith had any opportunity to be an SP, I'm certain the Brewers would've kept him. That was pretty clearly the difference between Smith and Patrick. Smith's 93-94 MPH fastball would probably dip down to 91-92 MPH as a starter. Perhaps his control and other pitches could give him a mid-rotation ceiling, but I doubt it.
There still is the chance he gets returned to the Brewers too. He didn't have much time at AAA and needs to make a big jump to MLB and stay there...granted the Chisox don't have much talent in general.