FWIW, there's a difference between "not what I want" and "undesirable". This is more a case of the former, I suspect. What did Emmanuel from Satimage say here recently? "in our scripts, we use only paths which are posix paths stored as strings". I wonder how he describes Smile's behavior.
use ASE : application "AppleScript Editor"
use scripting additions
set thePosixPath to contents of selection of document 1 of ASE
-- escape any quotes
set saveTID to AppleScript's text item delimiters
set AppleScript's text item delimiters to {"\""}
set thePosixPath to text items of thePosixPath
set AppleScript's text item delimiters to {"\\\""}
set thePosixPath to thePosixPath as text
set AppleScript's text item delimiters to saveTID
-- convert to HFS path
set hfsPath to (POSIX file thePosixPath) as text
-- insert wrapped in alias &c
set contents of selection of document 1 of ASE to "alias " & quote & hfsPath & quote