Well, the light obviously gets reflected from your screen/wall etc. So in that perspective, the led doesnt need to be visible.
I dont know if it works better when it is visible.
About smoothness i can say this: the more space of the camera of the wiimote you use, the better (you can see that in the test.exe window). It probably means that nunux didnt have the wiimote at an optimal angle/distance;)