The residents who are able to successfully kick the habit seem to lose their faculties faster than the ones who continue smoking. Before long the new non-smokers find themselves unable to get around without help when their still-smoking contemporaries are walking or wheeling out the back door.
I'm for letting them keep on smoking.
Having their cigarettes taken away seems to kill their motivation to get better or even stay at whatever stage they're at health-wise. Smoking isn't just smoking. It's independence. It's conversation and camaraderie. It's sharing. It's something to do that's not "old person" centered like some of the activities can be. (Bingo, anyone?)
You could make the argument that the resident is in decline anyway and smoking doesn't make any difference. Maybe. But of the people I've seen who have successfully quit smoking, more than half became bed-bound while their housemates who still smoke were managing to get up by themselves every day. Even if it was just to wheel themselves out for their next cigarette.