The overdrive being on or off on your Toyota will not effect a smog check
failure as the smog machine requires a specific RPM the smog technician must
maintain during both drive test speeds; 15/25mph. Usually the 15mph portion
will require 2nd gear and the 25mph part will require 3rd gear. Your
Toyota's transmission will control the RPM automatically and properly if it
is functioning right.
As far as the high NOx, your Toyota may very well trouble with the EGR
system. It may have carbon build-up within the EGR passages, It may have a
defective EGR valve (torn diaphragm), or possible a defective EGR valve
transducer. High amount of carbon buildup could render anyone of these
components defective. The only way to find out which part of the EGR system
is defective is by a through hands on diagnosis of the system.
Before suspecting the CAT Catalytic Converter we recommend having the EGR
system inspected. Also water coming out the tailpipe is not an indication of
a bad EGR valve. Water from your Toyota's tailpipe is simply condensation
due to cold, and should stop once the engine is warmed up.