As far as exalted smite goes, it's a set of enhancements that replace/improve your basic smite evil ability. You must be a level 6 paladin with extra smiting II to see Exalted Smite I as an option. The exalted smite enhancements expand your critical threat range and multiplier when using a smite evil attack, in addition to shortening the cooldown before you can use another. This provides pretty significant burst damage potential. Exalted 1 and 3 increase threat multiplier; 2 and 4 increase threat range (by 1 each). With all 4, your smite evil attacks have a 10% wider critical range and x2 larger multiplier than your regular attacks (in addition to the massive base damage increase, which is multiplied on a critical hit).
For example, with 2 rapiers at level 20 paladin and all the exaltd smite enhancements, you would have 13 uses of smite evil, each of which would make a normal and offhand attack at +67 to base damage, with a 40% critical threat chance (base 18-20, doubled for improved crit, and 2 more points added later..a 13-20 range), and a 4x critical multiplier. That means your smite evils will hit for 100-110 points of damage, and crit for 400-500 points of damage. (on each hand). Once you've used them, they regenerate only 1/90 seconds, so they aren't a sustainable damage increase, but are a very nice fast-kill method, and add enough damage to be significant over a long boss fight as well.
However, since they are limited use, they tend to be less important to your damage output than abilities with long durations and/or unlimited uses, like divine favor/divine might (static +damage every attack) and divine sacrifice (which does less damage than smite, but you can use it as long as you have the hp and sp to power it, which is essentially infinitely at high levels).
The fact that rapiers like smite evils and divine sacrifices (for smites, 13-20/x4 does more damage than 15-20/x5) is part of what defrays the difference between them and the Khopesh. The Khopesh is the best raw damage output weapon in the game (for the cost of a feat), but since your paladin-specific abilities like wide threat ranges so much (for divine sacrifice, 15-20/x3 beats 17-20/x4, again), the difference is smaller. If you had another feat, you'd take Khopesh, but it's a small loss when you pick up the drow rapier bonus enhancements.
I'm not sure why Paladin Exalted Smite isnt in the compendium, several people have commented on that. It's a very fun set of enhancements and it's great for regular instance questing where unloading all your smites at a dangerous boss mob is usually enough to kill it very, very quickly. Over longer raid-boss fights (where you may stand still and whack the mob for 3-5 minutes in a row without moving), the longer duration buffs add up to more damage, since your smites are all gone in under 30 seconds if you spam them, and you then only get one back every 90 seconds.
The main sacrifice of rapiers is that you have to spend 6-12 action points on melee attack/damage enhancements, which is a lot to spend on an AP-starved paladin. However, they're well worth the damage, and if you're gonna run epic quests, the attack bonuses are excellent also.
The rapier build template in this thread is one of the highest-damage dealing builds in DDO, and by far the cheapest and easiest to make for a new player. It lacks some of the utility of a more complicated splash build, but against evil outsider mobs there's only a few builds that can even hope to compete with it. Since evil outsiders are both a massive percentage of our raid bosses and a significant percentage of high-level trash mobs, it's not as narrow a focus as it will seem like at lower levels.