From what I remember, sleeping in the mountain as he did for decades made him complacent, fat and soft after slaughtering a kingdom - he's a walking metaphor for greedy industrialists really. So while he could still talk the talk, he could no longer walk the walk. But like I said in an earlier post, it was his personality that was the focus in the books - his interactions with Bilbo were similar to Bilbos ones with Golum, from memory. Except I think Smaug could still see, or smell Bilbo while he was invisible with the ring while they were playing their game of cat and mouse (but that's not in the movie apparently?).
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