I'm considering going with a more narrow wheel or tire. I'm currently running 1.95 tires and thinking of going smaller. Do you know if you can just go with a smaller tire or would it require a smaller wheel too? I'm guessing I can go down some in tire size but wasn't sure.

My goal is to make for a little faster/smoother ride, so I was thinking smaller wheel/tire and probably going with a more paved path friendly tire.

Depends on the rim but you can most likely use a narrower tire. I switched the 26x1.95 tires on my wife's comfort bike with 26x1.25 tires and they work fine on the stock rims. The deciding factor of what will fit is based on the width of the rim.

Almost all of the time you can move down on the rim. I'm using 1.5 and am quite happy...I think 1.25 would work well too.

I think the rim spec says: "26x1.5/1.95". I'm reading that as going to 1.5 is probably the minimum which sounds about right for me.

Any suggestions on a smooth rolling tire in that size?

I think it depends on the price range and how much you want to balance flats vs. rolling resistance/weight. I'm using Panaracer Ribmos and am happy with them. They are moderately priced, roll fairly well and are reasonably flat resistant.

In the past I've used Marathons and was less thrilled.

Conti sport contact 26x1.6. I just put a set on my new LHT and they're fantastically fast and grippy for a 1.6. I don't have too much experience with different tires though. I used to have a ss bike that had 23mm armadillos. These tires feel nearly as quick despite the width, but I have better hubs now too so I can't really be sure.