Totally up to your kids. My kids prefer to eat cupcakes, but my 4 year old asks for a cake on her birthday because it seems more special to her. Oh, and I agree that a smash cake is unnecessary.
Up to you. I did cake, because DD asked for a cake. (We had cupcakes the year before.) ATM, she's asking for cupcakes for this coming year. I let her decide.
Tritto on the unnecessary smash cake. I also think cupcakes v. cake is a preference thing. Personally I like cupcakes because they're easier for kids to hold, but we went with a cake for my son's last birthday because it was cheaper.
We do cupcakes every year, I think they are easier. I've never seen a smash cake done after the first birthday party, seems a bit odd. I always have them make DD's cupcake a little different from everyone else's, same size, but I have them put her age on there and use different colors.
Re: cake or cupcakes? 3rd bbday party
Totally up to you and theme. I do cakes because my kids usually have a favorite character and love the pictures I get with the big cakes.
As for smash cake, I don't think you need that by 3.