In addition to lore, I think that the none-lethal state also serves to help certain players play the game that don't (necessary) want to kill people. I do wish after shooting a target, that it says whether or not it's dead, and who did it when scanning.
You're still having to make many "leaps of faith" to explain away the game magic. It was an easy, but poor, way of doing it. As for smart weapons, they are supposed to be based on a perfected gyrojet concept, which is from the 1960s.