I don't think you have properly separated what you say from what happens to be the case. In your example, when Person B insults Person A at Discussion A, it is not clear that Person B knows the truth that smoking is bad for your health.
The insult could have been leveled for any variety of reasons (such as having a toffish accent). Thus, if we as enlightened critics say that the insult at Discussion A was a fallacy, we're not wrong just because the insult's predicate was daft: it's wrong to think that ad-hominem progresses a words-based argument forward or backward.
Now if an argument is based on a person's character, as when a person testifies about something that they know (as in court), the ad-hominem you level at them does progress the argument: "Don't listen to him, he's a crook."