Didn't they ever use smoke screens?
 

I was just wondering if convoys back in the day ever used smoke screens to hide themselves from U-boat during a suspected attack?

I dont know, I would´ve! :)

Little OT: Would it be cool, if the destroyers and aircrafts would drop those special smoke/color bombs, so they could see where you submerged. I read it from the Iron Coffins.

The definately used smokescreens in warships. Destoryers and especially battleships - all used it. If they have - I suspect so did the convoys, but I reckon the smoke screen is most effective in open seas combat when the rangefinders have trouble on tieing the ship.

I believe in WW1 they didn't use them as I heard this the other day on Discovery channel, but they can be wrong too.

They did.
If i remember correcty the use of smokescreen was mentioned in "The secret diary of u-boat" book .

At least 2 convoys they were hunting used smokescreen after the 1st torpedo hit..

Yup,

http://img370.imageshack.us/img370/4471/h854549lz.jpg

Will it be added to sh3? probably not since smoke really kills fps in the game :(

Wolfy