I spent DAYS working on a safe mode work around (with 3.1 or 3.2 or something, I forget exactly) with my host.
It's a nightmare. I gave up and my host transferred me to a machine where he could turn safe mode off.
It's primarily a problem with the files in the templates_c dir -- Apache owns them, writes to them, etc. PHP thinks this is a security problem because it doesn't match the owner of the rest of the stuff.
I don't know if other Smarty/X-Cart versions will have this same issue, but what you are describing sounds much like my nightmare...
deb
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