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I have a sony ericsson z520a and love it. The software I use for backing up all of my info is free and it's called MyPhoneExplorer. Google it. I had several problems with the sony ericsson suite that is supposed to allow me to do the same thing. It kept crashing and I had serious problems updating the phone's drivers. I hope this helps.
You have to insert the smart card all the way in on these phones. You can use a pen cap or something to push it all the way in there until it goes all the way in and click and stays there. Then it will not say " insert smart chip" anymore.
I have the same phone, and was getting the same "Insert Smartchip" message.
I seem to have fixed it by taking off the cover on the back of the phone (the part with the Sony Ericsson name on it), taking out the large battery, and gently pushing the little blue Smartchip back into its chamber with my fingernail, as it must have come loose somehow. The Smartchip "clicks" into the chamber when it is in there correctly.
I put it all back together, turned the phone off, then back on. When it came on, it worked again.