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SMG was the original version of the "sequential M gearbox" (loose translation from German) offered on E36 M3's. This version was based on the 5 speed manual tranny and had only 1 program and much less sophisticated algorithms for clutch engagement and shift speed.

SMGII is the new improved version BMW offers now on E46 M3's, with 6 flavors of manual gear selection and 5 auto modes. Basically, BMW took advantage of 5 years of progress in computing power and sensors when developing the SMGII version of the 6 speed tranny for the E46 M3.
 
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