The Saddlers have won plenty of admirers for their impressive passing game this season, which has taken them into the top half of the League One table, but three home defeats in the space of a week has halted their progress.
Port Vale inflicted the latest of those having fought back to seal a 2-2 draw after 90 minutes, before going on to book their place in the northern section quarter-finals with a 6-5 shoot-out success.
Smith said: "I can't fault the way the lads played. We had total control of the game after Port Vale started really brightly for the first 10 minutes.
"We went two up then a sloppy pass led to Vale scoring with a shot which took a deflection. I said to the lads afterwards that we had lost the game on penalties, but not many teams at this level will try to play the way we are at the moment.
"We looked a very good team, but I have certainly seen better penalty shoot-outs. We have to defend better than we do at times. But it was a great game in a really good atmosphere."