For regular smart cards, maybe they could be paired with some type of online service that keeps an eye on merchants and perhaps validates transactions based on buying patterns. At the very least, it would be nice to receive some type of statement at the end of the month to be able to detect fraud. Otherwise, with nothing but the blockchain to go by, it would be basically impossible to know whether your grocer has a hacked POS terminal that is ripping you off.
If you have access to a desktop running bitcoind or other client, it should be trivial to get said client to track tx to/from your card address. Remembering which tx went where is another story, but at least you could have some idea.
Then on top of that add interfacing with the merchant's accounting system. And besides magstripe and contact/contactless credit cards, you're competing with Paypal and Dwolla and that new Canadian Mint thing. It's likely that none of those will cooperate to share hardware. 
Do paypal and dwolla have physical POS methods that don't rely on VISA or mastercard? Maybe I'm missing something. That canadian mint thing sounds like a citizen tracking collar to me. It'll be a disaster of human rights and a disaster of identity theft. I don't think Canada is really the ideal market for bitcoin anyway.