My finishing touch: reflecting light in the eyes. I did the thing only with right eye, copy the layer style by clicking right button on the layers and then paste it on the layer you need.



I've changed the shape of the mouth because I really like to go more flexible- hate all this shape thing -so slow and boring) - but it is a duty).

I've stroked the shape line with a mere brush with all the settings turned off. Create a new layer.



Just one style to apply:



Now choose smudge tool (R) and so some smudging) - the strength is set to about 90 % (I use a tablet so I control the pressure. If you use a mouth, figure out the strength)



And what I did is:



Now I have these 2 shapes created with filling the shapes with color to transparency gradients within round selections and then transformed when needed.



This is the way the entire "Cool" highlight shadow, web 2.0 thing is actually done.



The eyes too:







Now what I did: I've defined my smiley as a brush (download).

Create a layer beneath the smiley. And so some painting (actually this is only a brush effect). Blur this layer.



Create another and choose much brighter color - let's say white.



Now some text work: which I choose to do in Adobe illustrator (CS2 this time).



And we are done: thank you for reading- practice a lot and it will be much easier for you to create things.