I have an iPhone 3G, whenever I add a photo into a folder in iTunes, and then I sync it to my iPhone, the photo doesn't appear at all in the folder on my iPhone.
Why is it doing this? The image is JPEG image type.
There could be any number of issues here; not enough room on the device, corrupt image(s), adding photos in the wrong place... Since I can't know what your exact issue is without more details, I will offer up a suggestion for a "flow" that works for me.
Once it is setup, iPhoto will show you the photos that match that filter
Then the next time you sync your iPhone with iTunes, it should sync over all the photos in that Smart Folder. If it is too many, you can reduce the time frame that you pull photos from or use
If this is not the kind of information that helps you, then post some more info about the issues you are having so we can try to answer those specific issues directly.