I believe they are parsed on display, so yeah, that should work.
EDIT: Actually, I take that back. If you reply to my post, you'll notice that the smiley appears to simply be an image with a URL of "styles/default/xenforo/smilies/smile.png". I could be wrong about this, but from this it looks like they are actually inserted as images, and not parsed on display. Kier or Mike, care to comment?