3lb is probably just about worth eating. If you get them too small they'll be mainly head, guts and bones and the flesh likely watery. Yes, bigger wrasse (which will be Ballan Wrasse in the UK) have more solid flesh with nice big, firm flakes. Down in Cornwall, I was fortunate to get a couple well over 5lb (maybe 6 /7/8lb) - wish I'd weighed them now as I found out later they were in record territory - we cut them into big, meaty steaks (salmon-style, cutting across the strong, thick, spine - these were big, hefty fish) and BBQ'd them, wrapped in foil with butter. The flesh was firm, with big flakes like a very thick piece of haddock. It surprises me that people have such low opinions of them - often having never eaten them - they seem as good any fish I have eaten and far better than anything you'd find in a supermarket. On average, I only take one wrasse a year, usually specifically for bouillabaisse (tomato & fish stew). The head/guts/bones are good for fish stock (sort of peppery) or raw as bait in lobster pots or for chum.
I would think you can smoke anything - the overriding flavour left at the end will, as usual, probably be smoke (like kippers)!
Mind the smoke doesn't make you sick (I think Pav had a bad experience when he first tried it).
Yes, all of the above sound good/viable ideas - try them & report back! My mother-in-law, a very accomplished cook, made a particularly good bouillabaisse a few years ago. I think she cut the fish (wrasse and probably mullet &/or mackeral) into large chunks first and quickly pan fried them before adding them fairly late to the tomatoes, herbs, olive oil, etc.
BTW For most fish dishes we like to include some or all of the following: Fennel (which, like several other herbs, has an aniseed flavour - in fact every part of the fennel plant has this flavour and can be used, from root, stem to leaf & seed), garlic, olive oil, butter, black pepper.
We also found adding the following good esp. with stir fry (in addition to the above): ginger, mace, mustard, soy sauce. Esp. with freshly caught fish, yum!
BTW they say that all wrasse start off as female and change gender as they grow bigger, such that all of the very big ones are male.