It is really irritating the way that Smooth shrinks the entire selected contour, especially after several applications. For me, this almost always introduces additional distortions that can be almost as hard to fix as the original irregularity of the surface I was trying to smooth. Is there no version of the Smooth tool that will maintain the border vertices/edges in their exact position while smoothing all the vertices inside these borders?
Perhaps Laplacian Smooth will suit your needs better. Access it via the Specials menu (press the w key while in Edit mode). The image below indicates the menu placement and (in the lower left) where to alter the parameters for Laplacian Smooth: