Is there a difference between an emoticon and a smiley?

Yes. A smiley is an arrangement of keyboard characters used to make facial expressions and gestures that are intended to convey emotion online (in e-mails, forums and chat rooms). In other words, it is a symbolic picture made from keyboard characters. These computer keyboard characters use punctuation marks and special characters arranged to suggest the expression on a human face. Some of these emotional expression that are conveyed during communication can be; anger, a smile, shock, sadness, humor, a grin, a laugh, sarcasm and so on. They are usually viewed sideways. Some frequently used examples include:

:-) Smiling
: )

;-) Ironic smile

:-( Not amused; a frown

: > a wicked grin

>:( Very angry

:O Yelling

:D Laughing

Emoticon on the other hand, is a smiley using graphical image rather than keyboard characters to express emotion. This means that keyboard characters used to show facial expressions and gestures in online communication is replaced with small corresponding images. These graphical expression are called emoticons. Emoticons (emotional icons) originated with text representations and is therefore a modern variant of the smiley.
There are dictionaries that define both as the same in terms of both being keyboard characters which is not accurate. They fail to address that one is graphical (emotional icons) and the other (smiley) is text and special character based. They both convey an emotion with a corresponding facial expressions and gestures. However, emoticon are much better since they are using a graphical face that can be related to that of a human expression. This makes it quite easy to be interpreted by anyone receiving it in any text message unlike that of a smiley.

Emoticons and smiley are both used in online communication to communicate feelings (pleasure, approval, sadness, anger, humor etc.) and are the best way to convey emotion in a message without any misinterpretation that can sometimes happen in a written message. They add color and character to daily online conversations. They however should not be overused in your digital communication (emails, instant messaging, forums and chat rooms).

By the way..a smiley was first born on 19th September....thts when my B'day falls:)

Cheers!
Niraj