>Sounds nice, but this seems like a somewhat heavy-weight approach for something as simple as smoke hovering in the air.
>Maybe if smoke became more interesting gameplay-wise (smoke bomb?).

The smoke should hover in the air - but there should be a reason why you would not want that smoke to be IN your castle (can't breath in it, doesn't look nice, whatever). The coolest possibility would be that the smoke behaves like a material with negative acceleration, of course (aka, liquid physics, gogo!) ;)
My point here is just that I don't want to give the players artificial restrictions like saying "you cannot build that XY here, it needs a chimney!!!" when the player wants to build, say, a furnace.
I want the player to notice himself that he does not want the smoke in his castle and find an own way to work around that - without having artificial restrictions from the game.
(And hey, if you have such a "smoke-room", you could catch the smoke and fill it into smoke bombs, of course!!)