Firstly, you can still get smoking rooms in hotels. As a non-smoker I'm glad about this, as smokers generally reek of the stuff!
The general trouble is hotels (everywhere) regularly get customers who do smoke trying to smoke in non-smoking rooms thinking if they just open the window, or keep a tap running 'it won't matter'. It does.
Even at some of my favourite hotels, which police it as best they can (like all hotels) there have been times when I've had to reject 3 rooms because of smoker residue issue.
Now, it sounds like the hotel here does have a serious problem. Perhaps management/staff are smokers themselves.
I think you did make a mistake not raising the matter, but I also think they were possibly not (at all) enforcing the legislation.
Just some thoughts/questions: Is it possible you were on an entire 'smoking' corridor? I.e. all the smoking rooms were on the floor/corridor?
When you say ashtrays in the common areas, do you mean only by the door ways, or randomly inside?
Also, was there smoking (and non-smoking) lounge rooms etc?
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With regard to star rating, I would dispute that european hotel standards per star are lower than US per star, but what I would say is that it is shocking what star levels can be considered upon. There are plenty of properties I've stayed in (in the same country) where it is clear the star rating was based upon totally different factors to other properties.
Having said that, looking at their website pictures, I can't believe they claim to be 'four star'... - but I could readily belive others (who value different things differently) could possibly consider it like that...)