Carrie, there are so many subjects to consider here that it will be tough to stop. Shellac is an excellent agent for covering up smoke smell and it's extremely safe. They use pharmacutical grade shellac for the outside of pills. I believe that SPS is a variation of this that is made specifically for smoke cover-up--a pigmented shellac. It does a great job of covering up odors and stains. That's what Zinnser's B-I-N is, and there are other products by other manufacturers that are the same, such as the original KILZ.
It does smell terrible when you apply it but that is just the alcohol evaporating. Once it has dried--usually about in less than an hour, the smell has totally gone and you can paint or paper over it with no problems. It is water resistant but will continue to be disolved by alcohol.
Now to the "hot button" of mine that you hit. Treated lumber is pressure injected with chrome copper arcenate. The chrome and copper are much more dangerous than the arcenic. There is more arsenic in the soil that occurs locally than there is in CCA treated wood.
CCA treated wood does not off-gas. Excess CCA will rinse off for a short while, but it prefers to stay in the wood. There are a lot more dangerous things in your supply of cleaners and other household chemicals, but if you mistreat either, you will have problems.
Obviously after these statements you will want to know why the big commotion exists. This was started by some "environmental" people. Among other issues, they proveably used bad data in the Florida study. The treaters don't really care that the replacement chemicals for CCA don't work as well and have much less usage history since their "playing field" is level. All that they have to do is dump a different product in their tanks after the next annual cleaning. Probably, someone will crow that they have done something good for the environment and this will be as much "smoke and mirrors" as the process that created the change. If there was not a replacement that was similar, there either would have been no change. The EPA was very gentle in the negotiations for this change because they knew that CCA was not a problem. And the EPA usually makes sense.