I think everything is ok. The result is different because
- in Reference mode you use Layer 1, Layer 2 and Layer 3 and current drawing buffer (empty before you start a stroke) as a source for Smudge
- in Current And Below mode you use Layer 1, Layer 2, Layer 3 and Layer 4 (which is also drawing buffer, not empty before you start a stroke) as a source
If you want to achieve the same result in both cases you have to add Layer 4 to the list of reference layers.