I got the w850i a few weeks ago, and lately the phone has been telling me to insert a smartchip. after i turn off and turn it back on a couple of times, the error will go away. it doesnt help to take out the battery, take out the smartchip, and put it back in. a friend suggested that some dirt or lint might me caught in there, but i used some compressed air to blow it out, and that made no difference.
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You are placing the smart chip on top of the smart chip holder. It's a little metal square where the smart chip should go. Lift up the metal square and place the smart chip underneath. I had to go to my local AT&T dealer to figure this out.
I had the same problem but i fixed it. I'm not sure if this will work for you though. I took off the battery door and noticed that although my battery fit, it was somehow off by a few millimeters maybe. I took a tiny piece of paper, folded it and then fit it near the edge of the battery. This pushed the battery exactly where it should've been and then the phone could read the sim card again. I don't know how it got knocked outta wack but this seemed to help.
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.