The convertion is done in the functions_format_post.asp file here:-
'If emoticons are on then change the emotion symbols for the path to the relative smiley icon
If blnEmoticons = True Then
'Loop through the emoticons array
For intLoop = 1 to UBound(saryEmoticons)
strMessage = Replace(strMessage, saryEmoticons(intLoop,2), "<img border=""0"" src=""" & saryEmoticons(intLoop,3) & """>", 1, -1, 1)
Next
End If
It uses the ASP replace function but is set to not be case sesitive, if you wish it to be case sesitive then you must change it to a binary compare instead of a text compare.