So, I play in a game run by a friend of mine - his young daughter also plays, and I wanted to make sure I watched my language...
"Smurf," in gnomish, is a rubbery blue residue resulting from botched alchemical processes. Lumps of the stuff are most often created in failed attempts to create homonculi, it is however not uncommon in other processes when the reagents weren't pure. It is rubbery, slightly tacky... and has no purpose the gnomes have yet discovered. It is not sticky enough to be an adhesive, it has only marginal structural integrity, is not edible (but is basically non-toxic). It is... a little blue lump of failure.
It thus becomes a bit of gnomish invective. "You smurfhead!" "What the smurfing smurf?" "Well, that's smurfed it." "We're smurfed." and so on.