Smith is a unique program and sentient - but all of the programs featured in this trilogy meet this criteria. They are all A.I. created by A.I. The entire race of programs are brought into being for a purpose and can think and act of their own accord. Programs can create other programs - which is akin to reproduction.

But he became too aware of his own consciousness/purpose and began to fight against his creator.

What I observed in the first movie was a Smith who was SICK OF THE MATRIX.

All the programs are highly aware of their purpose. Purpose governs their existence. Without it, they are deleted.

This makes Smith's behavior really odd. He didn't start out directly opposing the Machines but we see him make an effort to avoid being observed or heard when he grills Morpheus for the codes:

Agent Smith: Can you hear me, Morpheus? I'm going to be honest with you. I hate this place, this zoo, this prison, this reality, whatever you want to call it. I can't stand it any longer.

So Agent Smith, whose purpose is to police the Matrix, wants out?

Agent Smith: I must get out of here. I must get free

Wow! Smith is essentially saying that he would rather be DELETED then stay in the Matrix. Because that's what this means. He's pinning his hopes on these codes as if he's forgotten about the cyclical nature of the sim. Unless he doesn't know about that at this point. Which is what I suspect - reload resets the agents.

The problem with Smith is that this hasn't prevented him from coming to loathe his own existence. He has a purpose, a vital one. But it is driving him nuts because he's TIRED OF THE CYCLES.

The Oracle realizes what the Architect won't admit - that the repetitive nature of the simulation is DRIVING PROGRAMS TO REJECT THE MATRIX as well as humans.

Machines aren't supposed to behave like this. Machines accept their program and do what they're told without question. Machines OBEY.

Humans, on the other hand, innately want to transcend boundaries. If confined for long enough they would rather DIE than be trapped. They will risk their lives for the sake of growth. By their nature, humans DISOBEY.

So what happened to Smith? Despite himself, his prolonged exposure to humans has changed him. He has taken on human traits. Thus his desire to "get out" of the Matrix. He interprets this "feeling" as hatred of his surroundings but I believe that what's really bugging Smith is monotony. He's tired of doing the same thing over and over.

Smith is exhibit 'A' but I suspect that it was happening with other programs as well. I think that the Oracle realized that unless something was changed, human acceptance of the simulation wouldn't be enough to keep it stable. Eventually the Matrix would crash due to rejection by it's own systems.

It's why she was willing to risk everything for the sake of change.

So 2nd gen Smith wasn't really "created", so much as he was a consequence of stagnation.