Don't think I can explain it further than the title + video demonstration, sorry :)
Video attachment too large, here's a link: https://drive.google.com/file/d/1S9-qbE6CLmWd2XscJGyJMy8o7d1wABfr/view?usp=sharing
Application Version: Master Confirmed. Smudge Length "Dulling mode" seems to override any overlay mode behavior, likely a control flow issue.
Git commit d4fbf53155b2e1642aef81bc288f8c8cf5010a93 by Eoin O'Neill. Committed on 12/10/2018 at 08:10. Pushed by eoinoneill into branch 'master'. Fixed bug where smudge brush did not respect 'Overlay Mode' while 'Smudge Length' mode is set to 'Dulling'. M +24 -15 plugins/paintops/colorsmudge/kis_colorsmudgeop.cpp M +2 -1 plugins/paintops/colorsmudge/kis_colorsmudgeop.h https://commits.kde.org/krita/d4fbf53155b2e1642aef81bc288f8c8cf5010a93
Git commit 8476d4aa4471bd6beea754a37308ea0e05f9000d by Boudewijn Rempt, on behalf of Eoin O'Neill. Committed on 20/11/2018 at 08:20. Pushed by rempt into branch 'krita/4.1'. Fixed bug where smudge brush did not respect 'Overlay Mode' while 'Smudge Length' mode is set to 'Dulling'. M +24 -15 plugins/paintops/colorsmudge/kis_colorsmudgeop.cpp M +2 -1 plugins/paintops/colorsmudge/kis_colorsmudgeop.h https://commits.kde.org/krita/8476d4aa4471bd6beea754a37308ea0e05f9000d