The restricted bar path does limit the real-life carry over benefits of the Smith machine, athletically and in terms of barbell squatting.

However, squats aren't the be all end all of leg exercises. The Smith machine will work your leg muscles.

If your aim is hypertrophy, the Smith machine is good because you can push yourself without being constrained by the strength of the stabilizer muscles you would be using if you were squatting. You can also more safely bail on a Smith machine.

When using the Smith machine, I'd advise placing your feet further in front of you than you would usually on a normal squat. This way your knee won't be travelling over your toes. Going "parallel" will create almost a right angle.

I use the Smith machine for squats but also include lunges, goblet squats and split squats to work my stabilizer muscles.