It's because a lot of the smoothcoat pups available are bred from non-registered chis! These were chis who were most likely sold as pet only and not to be bred from, but people still did! Since the parents were not registered, they cannot get the pups KC registered either.
Other breeders breed to standard, meaning they want to improve the breed and would simply not register a pup they deem not to be close enough to the breed standard - though the parents may be KC registered. Plain and simple. This should essentially stop people from breeding or showing them (because they may be good pets, but not good enough for breeding or showing). They should go to pet homes only, but as you can see from the amount of pups from non-registered chis being sold, this doesn't always work.
Then, there is the fact that there seems to be a huge demand for smoothcoat chis at the moment. Many breeders keep the females, as they can be bred from and sell some of their pups to fellow breeders for breeding or for show. Therefore, many smoothcoat chis that are being born may never enter the market - they go to people the breeder already knows.
Both my smoothcoat chis are KC registered. Toby is 3&1/2 years old now, and I got him for quite a good price (compared to today's prices). Cashmere was £1,500 - and I was lucky enough to call the breeder about 5 min. after she put on the ad, as loads of people called. The breeder planned on keeping her, but she had another litter on the way and there would just have been too many pups. When I picked her up, the breeder told me that had she known that she would turn out to be really beautiful, she would have kept her for showing. I was just lucky there...
From the breeders new litter of three, 2 pups, one boy and a girl, were kept by the breeder, whilst another boy went to a fellow breeder who was going to show him. Thus, none of her new pups actually ever entered the open market.
You see, there are KC registered smoothcoats around, but due to their popularity, they don't often get to the open market... and if so, then they are snapped up within minutes!!!
Those breeding unregistered smoothcoat chis know about the demand, and push the prices up high, following which the prices for registered chis also go up into the sky. It's the old formula about demand outstripping supply, which pushes prices up... I can't believe you can actually apply Economics to Chihuahuas these days....