It seems like this has probably been addressed, but I'm afraid I can't find anything on it.
The text seems somewhat contradictory to me. On the one hand, you have: "If the target is .. an undead creature ..", but later on it states: "If the paladin targets a creature that is not evil, the smite is wasted .."
That last bit seems pretty clear, but if it's true, why bother with phrases like, "evil-aligned dragon"?
Supposing some undead are non-evil (our DM stipulates that zombies (eg.) simply mill about looking for food, like dire bears), does Smite Evil work on them?