It's great to lay a temporary cover across a large area. You sprint across with it stuck to your head, and then you have a large area covered with it. It's definately something that can be exploited.
As far as the destroying bit, the person who's head has been hit by smoke, that nade disappears, yes. But, to everyone else on the server, it is replicated as being only on the head of the person who had it stuck to them. The pattern of how it works is fairly easy to see; for the player, when they move, the smoke moves twice as much as they do. For everyone else, it only moves just as much as the player does. This really is an issue that should be looked at, imho, more carefully.