But it won't be, because every time an honest delegate's turn comes around, the votes will be included and the longest chain will be an honest chain again.

How about a penalty for delegates not including transactions that the network has seen for 30 secs and are valid? Penalty would be to deny 2-10 rounds of payment.
Would that help in this case?

You're missing the point here. The fork is created by some delegates ignoring transactions and blocks that include votes that take away their power.  The other fork therefore includes those votes. Therefore the honest fork automatically heals itself, and the dishonest fork cannot.

Then users will swarm the boards wondering why their transactions went through.  The community will discover they've been attacked, and will roll back / fork the network to vote in a new set of delegates.  The attackers attack will have been for naught.  Short term, this attack will give BitShares a minor black eye, but long term it will show how resilient the network is and there will be no more incentives to perform this attack again.

This also assumes that our non anonymous delegates are willing to harm their own reputation and risk their own investments for peanuts.

The point is that being "rational" he thinks that all 101 delegates would immediately accept payment from the smart contract, and reject any new voting transactions that would replace any delegate.  He's basically asserting that the BitShares network would be unable to find even 1 out of the 101 delegates who would refuse to sabotage the network if offered a 1% pay raise as a bribe to sabotage it:

You don't need a smart contract. Delegates get all payed already. Depending on their payrate 0%-100%, they get x% of 50BTS per block that is signed.
That also leads to an incentive to stay honest.

I don't see how a smart-contract would change anything. BTW, who pays for the smart-contract?