First get some smilies - you should already have downloaded some. If you haven't I have got some here.

In your FTP, open your cutenews folder. Then go to data > emoticons.
Inside there should already be some smilies - these are the default ones. Delete them all APART FROM .htaccess and index.html.

Now upload all your smilies here in the emoticons folder after you have deleted the previous ones.

Then now go to your cutenews. It should be yoururl.com/cutenews/
Unless you changed it.
Log in. Go to Options > System Configurations.

In the place where it says smilies. Type the name of the emoticons.
For example this is the name of my emoticons in my ftp folder :



Then this is what you would type in the smilies area :



Now test it out and see if it works. Go to Add News. You might have to refresh.
It SHOULD work now. And you're done!