[Aerich]

It's not amazingly useful in IWD at the lower levels. I don't use it very often. Mostly I use it (with a paladin) for disrupting evil spellcasters or weakening groups of melee attackers clustered around my other tank. It's not that bad, though, if you aren't using evil characters. As it's an alignment-specific area spell, you could draw a group of evil creatures and weaken them all with one shot, not worrying about hurting your party.

I would guess that it doesn't work on shadows because they're not willingly evil (remember that the Priestess of Auril summoned and controlled them in the Vale and they were set free when you killed her). I suppose that reasoning could also be used regarding lizardmen, although it's a stretch (e.g. they are dominated by their king who is dominated by the Snake Goddess). Of course, if you're used to PnP D&D, that doesn't make sense. Evil should be evil, regardless of whether or not it is dominated by a stronger force.

The effectiveness of Holy Smite does go up with the levels of your character, so it does get somewhat better. Try casting it with a lvl 20 paladin and see how you like it... (although it may have an upper limit, I'm not sure)

One more thing - on the occasions where I use Holy Smite with a paladin I usually cast Detect Evil at some point on the creatures I anticipate casting HS on. That lets me know what creatures are considered "evil" and therefore will be susceptible to Holy Smite. All those free Detect Evil abilities of the paladin have to have a minor use somewhere.

I think that HS may also blind creatures for a short period of time.