I am trying to setup the php editor to debug using smarty.
I keep on getting an error saying it could not open the smary.class.php file.

I went to the project properties and inserted a few directories to my smarty files.
C:\Inetpub\smarty\libs;C:\Inetpub\smarty\libs\internals;C:\Inetpub\smarty\libs\plugins;C:\Inetpub\smarty

But it still will not run. What am i missing or doing wrong?

Chances are that it has to do with your Project settings - could you post the screen shots with that? Is it local or remote debugging?

I think i just fixed it.

I had the run mode in local. I switched it to http 3rd party
I set my root url to my http address
and my root directory to my local path

it seems like that worked.

Is that correct?
Is there another way?

yes, it sounds right