What am I missing?

I don't know – is there an error here that you're trying to solve? What you're seeing is a warning that's saying, well, exactly what it's saying, that projects these days should use PEP 517 builds.

Why would pysmt-install use the deprecated setup.py?

Because that's what it's written to do (1, 2).

There's a whole bunch of grody patching going on in those installers anyway, and looks like those "sub-packages" just haven't been updated to use modern build methods.