I think probably you have WYSIWYG on. In WYSIWYG emoticons will only work if there's no HTML there, i.e. no tags (which includes no line breaks). If there's HTML, it will ultimately invoke the semihtml parse mode of Comcode, which doesn't know HTML structure so can't support *typed* emoticons (as it could theoretically mangle the HTML if it did).

I'll add an issue regarding making it smarter, but it won't be a bug issue.

Are you sure? Even the list of emoticons displayed to the left of the comment box shows O_o instead of the actual emoji. The only time it actually works is when you go to view all emojis in the overlay window.

Apologies for not specifically mentioning that.

Are you saying it's happening when WYSIWYG is not relevant, e.g. for the quick reply style comment box?

Can you give me an example of exact Comcode that is failing?

Yes it's happening irrelevant of the WYSIWYG, such as in the activity feed and quick replies. Also, the quick reply boxes display a box of emoticons to use, but the O.o emoticon shows up just as text instead of the smiley it's supposed to be.