Hi Paul,
Receiving live ads with TestFlight is expected. To get test ads, you should be able to accomplish this by registering the device IDs in the ad requests. This should be done when you have testers who will be fuzz testing the UI and clicking the ad, thereby generating false impressions and click reports. However, if that isn't the case, then it is acceptable to see production ads.
Smart banners intelligently adapt to your device screen sizes and orientations, but they are not yet supported by all third-party networks. You will have to clarify for support per use case. You should be able to see smart banners "change" by rotating your devices, at the very least.
Cheers,
Vu Chau
Mobile Ads SDK Team