No, MSN Messenger did change it for the sender, too. The receiver of a message's settings determined whether they saw the image. You could turn it off in the Text Formatting options, just a simple checkbox.
So I'd disagree with the 'utterly useless' aspect.
That's exactly what I said, if you, the sender, have smilies turned off, you will see the normal code (...:) for example. But if receiver (the person you are sending the message to) doesn't know to turn smilies off, they will receive a graphical picture where the ":)" is in your message, even if it is part of a code block. And there are so many smilies that I don't recognize (not just the ":)" ones), that I never know what the receiver is going to see. Hence, it is useless for sending code fragments (or anything else other than conversational text), since you never know if what is on your screen matches what the receiver will see.