I have a suggestion.

Part of why mag-stripe cards find more use than smart cards is because they are cheap and ubiquitous. Every merchant on the planet has some device already which scans mag-stripe cards and if they somehow don't (or use an embedded device) they can be had for less than $20.

When base-64 encoded, the public and private keys for a single wallet are plenty small enough to fit on the two tracks readable by most devices. Simply use a block cipher of some sort and a standard PIN number to secure the private key before burning to a card, write a little software to b64decode the keys and you're good to go. More merchants will accept a mag-stripe solution than a smartcard solution because it either uses hardware they already own OR it requires less expensive hardware.

You may also consider hacking together a small embedded device that handles all of this for the merchant and just needs a network connection. Once bitcoin gets ported to Android successfully you could easily write software for a smallish tablet like the Archos 7, which has a USB host adapter cable that allows keyboards and other HID compliant devices (like mag-stripe readers) to be attached. It's also fairly cheap in the $130-$150 range.

Merchants like easy, merchants like familiar, and merchants definitely like cheap. Give them something with a < $200 buy-in cost that will bring them niche business from the bitcoin folks that won't cost them monthly fees or steal a percentage of their profits and they will come in swarms. Make it convert to USD and deposit in Dwolla or such automatically and it'll be an even easier sell.