At the object level, scaling and translation of the proxy mesh does affect the smooth mesh but when I switch to verts or edges, there is no effect on the smooth mesh. The only fix I've been able to find is to delete the smooth mesh and recreate it.
I am fairly certain it's a setting issue in the Proxy creation since I'm running Maya 2008 and the tut was for version 5. The whole proxy creation process seems to have evolved a bit...
