That method has some advantages, bonestructure–namely, the ability to adjust the intensity of the blend after the fact–but I’d need to see multiple successful examples of it in action to be totally convinced. 
The Smudge tool really is useful, but you’ve got to know how to use it correctly. Some people are huge proponents of the standard hard round brush for painting, but that brush is worthless when you’re smudging, imo. You have to activate Scattering in order to avoid results that look like yucky smears of digital paint. If you think about it, Scattering causes the tool to spread pixels around in the vicinity of your stroke rather than smudge them along the path of the stroke–and spreading the pixels around is what blending’s all about.
Never forget the ultimate smooth blender: the Smudge tool set to the soft, round brush with some Scattering. Produces results that are smoother than a baby’s bottom, and it’s easier to control than the Blur tool or the same Smudge brush without Scattering. Funny, isn’t it?
Never discount the many many uses of layers to accomplish what you want.
Very true, but never forget the benefits of being economical with layers, either. I tend to be a layer-holic, but I’ve found that painting is generally a happier process if I limit my number of layers to a sensible minimum. Merge them when it’s appropriate–you don’t have to keep every layer you create. Most paintings can be pulled off with perhaps five to ten layers at any given point in time, or even fewer. Don’t forget that painters have worked traditionally without layers at all for centuries. 