He smokes. It's a fact and he does it regularly. I wish he didn't smoke. If he didn't smoke, I would be happier. He is smoking. He is doing it now. I wish he wouldn't smoke. If he wasn't/weren't smoking now, I would be happier.

When you say, "I wish he didn't smoke" its in a past tense, as if you don't approve of this persons choice of smoking. Now when you say "I wish he wouldn't smoke" its in the present and its as if this person is smoking in your house and your speaking to someone else about him.