Since some patch made after that video was current, smoke grenades do block AI sight.
Many of the other effects are ACE specific, as well, such as the armor damage system.
It's definitely true that ghillie suited snipers are less visible to the AI, though. Terrain, etc. is irrelevant -- it's a hard-coded multiplier.
"It is necessary to develop a strategy that utilizes all the physical conditions and elements that are directly at hand. The best strategy relies upon an unlimited set of responses."
-- Ueshiba Morihei