Secrets to a smooth finish?

I do both.  I also prefer to stain and put on the first coats of stain and poly, or paint, before assembly. It's easier when you aren't working inside a 12x12 cubby.

Start sanding with coarse sandpaper, switch to finer grade, then switch to ultra-fine (the number of the grit keeps going up). Wipe with a soft cloth dampened in mineral spirits between changes of sandpaper. 

Stain, apply a couple coats of poly, sand with extra-fine grit paper, do another coat or two.

 Water-based stains and paints tend to raise the grain, so sand lightly between coats if you use them.

If you use water based stains wipe the wood with a wet cloth after the final sanding step. Let it dry and lightly sand again with the finest sandpaper you used. The grain rises after wetting and sanding once again will remove most of it. But make sure you don't use old sandpaper for that step.

I recently finished a project using water based stain on oak. It definitely raised the grain to use it, BUT i diligently followed the advice of the Rockler guy and did this: stain, 2 coats of poly, 3 more coats of poly, buffing gently in between each one, and it feels fairly smooth. After talking with him, I believe if I wanted it to be even smoother, I would continue with more coats of poly. Sanding is important but if you sand it to too fine a grain, it will be less likely to take stain, so since I was staining a very dark color, I wanted to be careful not to do that. Next time I might try the trick with the wet cloth, but I am happy with how these projects turned out. I can feel the grain but it looks and feels pretty beautiful.