There are two ways to change the Wordpress Smilies, the first way is to just replace the images of the default ones, but what if you want more interesting smilies, or more smilies than are available?

WP 2.0 - Navigate to your wordpress install folder and go to wp-includes and open vars.php.
WP 2.1+ - Navigate to your wordpress install folder and go to wp-includes and open functions.php.

Find the following code.

‘:mrgreen:’ => ‘icon_mrgreen.gif’,
‘:neutral:’ => ‘icon_neutral.gif’,
‘:twisted:’ => ‘icon_twisted.gif’,
‘:arrow:’ => ‘icon_arrow.gif’,
‘:shock:’ => ‘icon_eek.gif’,
‘:smile:’ => ‘icon_smile.gif’,
‘:???:’ => ‘icon_confused.gif’,
‘:cool:’ => ‘icon_cool.gif’,
‘:evil:’ => ‘icon_evil.gif’,
‘:grin:’ => ‘icon_biggrin.gif’,
‘:idea:’ => ‘icon_idea.gif’,
‘:oops:’ => ‘icon_redface.gif’,
‘:razz:’ => ‘icon_razz.gif’,
‘:roll:’ => ‘icon_rolleyes.gif’,
‘:wink:’ => ‘icon_wink.gif’,
‘:cry:’ => ‘icon_cry.gif’,
‘:eek:’ => ‘icon_surprised.gif’,
‘:lol:’ => ‘icon_lol.gif’,
‘:mad:’ => ‘icon_mad.gif’,
‘:sad:’ => ‘icon_sad.gif’,
‘8-)’ => ‘icon_cool.gif’,
‘8-O’ => ‘icon_eek.gif’,
‘:-(’ => ‘icon_sad.gif’,
‘:-)’ => ‘icon_smile.gif’,
‘:-?’ => ‘icon_confused.gif’,
‘:-D’ => ‘icon_biggrin.gif’,
‘:-P’ => ‘icon_razz.gif’,
‘:-o’ => ‘icon_surprised.gif’,
‘:-x’ => ‘icon_mad.gif’,
‘:-|’ => ‘icon_neutral.gif’,
‘;-)’ => ‘icon_wink.gif’,
‘8)’ => ‘icon_cool.gif’,
‘8O’ => ‘icon_eek.gif’,
‘:(’ => ‘icon_sad.gif’,
‘:)’ => ‘icon_smile.gif’,
‘:?’ => ‘icon_confused.gif’,
‘:D’ => ‘icon_biggrin.gif’,
‘:P’ => ‘icon_razz.gif’,
‘:o’ => ‘icon_surprised.gif’,
‘:x’ => ‘icon_mad.gif’,
‘:|’ => ‘icon_neutral.gif’,
‘;)’ => ‘icon_wink.gif’,
‘:!:’ => ‘icon_exclaim.gif’,
‘:?:’ => ‘icon_question.gif’,

Replace the icons in the single quotes with the symbols you want to represent your new smilie and in the next set of single quotes add the smilies filename and extension. You can add or delete to your hearts content.

Once you’ve done this go to wp-includes>images>smilies and upload your new smilies!!

I do love smilies.