In order for smoothing to work you should make sure the following points are met:
a) At least two neighboring faces are set to smooth (in Object Properties/Textures).
b) The neighboring faces have an angle of less than 90 degrees, i.e. you can´t smooth shade a cube
c) The texture is reasonably sized and scaled
d) In build options Testmap or Levelmap is selected, Preview and Highprec are deactivated