He's a good bowler too, leg-spin is just hard. Guys who focus on that usually can't bat as well as he does so it makes the decision easier.
It's the dilemma with all-rounders; at what point do you make decisions about your strengths and which one's more likely to get you in the team? And, of course, there's how the player sees themselves, what they want to do, etc. Steve Waugh took years to give up bowling (his back made that decision for him, probably) and blokes like Watson still haven't really figured out what they want 10 years later. It's a tough decision and for Smith, I doubt it's settled because he's clearly still working on his bowling too.
Have said a few times, Ritchie Benaud was a part-time bowler for the first 8 years of his Test career so there's precedent for a bloke becoming a world-class bowler after years of being a mid/lower-order bat. Again, depends on what the team needs, what Smith wants out of the game, etc.