I would reccomend you to use "FloodBox" it's free, and it has alot of great features (block usenames, admin usernames, banned words, remember users, autoscroll, anti-flood functions, chars counter, etc.).
The official site is floodboy.net, but I had to find another website that had it for download because the owner of the official website is selling the domain and doesn't have the script up.
You can download floodbox from this website. If the config file still doesn't work when you add banned words to the filter, then you can try the other shoutboxes on this website (Tagger, and Tag PHP). Make sure you use lowercase letters and put quotation marks in the banned words, that might be the problem.
I appreciate all the suggestions. Still doing research as I am not completely happy with what I am testing.
Features required:
1. flood control (ip and optionally cookie throttle)
2. bad words filter
3. single iframe insertion, though I can hack around this
4. no mysql required
5. smilies via floating DIV, NOT a popup
Many don't have #1, some have #2. Most don't suffer from #4.
I have yet to find one what works like #5.