We have a smart car and it's fab! We bought it last year using the scrappage scheme, so it ended up not being too expensive and it is a great little car for the two of us. I think that the newer models - 2008(?) onwards - are far superior to the early ones, performing much better in crash tests etc. We get around 300 miles from a tank, which still costs under £30 even if it's gasping and most of our driving is London-traffic-jam stuff. We bought the petrol passion which has aircon, European sat nav and start/stop technology - all of which are fairly useful!
The insurance is really cheap and it costs £20 to tax for a year. The diesel model, and I believe the new petrol, also come in under 100 wotsits per mile of CO2 and are therefore exempt from the Congestion Charge.
It's great fun to drive too - as it weighs practically nothing it can really move, and whilst I thought I'd have issues with an automatic it's just so easy! They're also a lot more comfortable than you'd think. We drove ours down to the Dordogne last year and it was far more pleasant than similar journeys were in our Volvo. They've also got capacity for loads of luggage. We had a little disaster on the way back as the fuckwit who fitted our (smart) bikerack (at considerable expense) had failed to fit the brackets properly and it fell off. Breakdown cover (even from smart) doesn't cover your bike rack failing, so we managed to get 2 bikes, clothing for 2 people for a fortnight and 2 people in the car.
Honestly, I absolutely love it - it's a great car! We have a new (properly fitted) bike rack and we manage perfectly happily as a one car family with it.