I don't think there's particular wrong on either side. Person X naturally wants person Y to give up a habit which they dislike, and which is harmful to person Y. I see nothing wrong in person X wanting person Y to change a habit like that, since they are going out with person Y. I also see nothing wrong in the person Y refusing to give up, since they are at liberty to make a choice regardless of person Xs wishes.
However, since person Y is unwilling to stop smoking, person X is going to have to decide whether that is so much of an issue that it will affect the relationship. Essentially, there is a conflict of interest and if neither person X nor person Y are willing to compromise, there is a real problem there, which may lead to person X and person Y feeling that a relationship is no longer possible.