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The internet raises all sorts of new issues in all sorts of realms. I would suspect that Smith-Mundt doesn't prohibit US govt communications being posted on the net for overseas consumption merely because readers in the US could access the overseas sites. The analogy from pre-internet days would be whether it would be illegal to bring into the US a pamphlet circulated by the US govt abroad. Obviously it wouldn't be, and I don't think we want to live in the sort of police state that would prohibit people from bringing in reading materials from overseas. A website designed for overseas consumption but accessible through the net here is roughly comparable (though not perfectly).
More to the point, though, don't we want to have transparency here? Shouldn't we WANT to see what's going on in other countries, whether it's our own government's actions or other governments'? What is the harm?
The other thing is, we have to understand what propaganda is for purposes of the Smith-Mundt Act. I haven't done the research and haven't dug out the definition, but if we're going by the dictionary, then every press release put out by a Congressman, Senator, White House, agency chief or department head is propaganda. That's what propaganda is: self-serving PR stuff. And that's why I think the statutory definition is probably a bit more precise.
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