Its been said before and said again, when played at CB, Smalling has always looked solid. Fergie really didnt do him (or Jones) any favours by insisting on playing them both out of position for what felt like about 5 years. He handled the transition from Rio/Vidic really poorly it has to be said (same can be said about midfield), and both Smalling's and Jones' development were likely hindered a bit by that.
Now that he has started to get consistent gametime, Smalling has looked like our best defender and always has done. The argument that he is poor on the ball is valid, but it is worth noting that in his first couple of seasons at the club, passing and ball-playing was considered a big strength of his, and he was compared Rio in that regard (with Jones as the Vidic of the pair). Whether it was due to confidence, being played out of position or some other factor, we will likely never know why his on-the-ball ability seemed to deteriorate a bit, but the ability is definitely there.
I think that with the responsibility he appears to be given of being our leader in defence and potentially even getting the captain's armband at some point, it will hopefully spur him on and give Smalling the confidence to really step it up another notch. He (still) has the potential to be a really complete defender (including passing etc).