Oh you are absolutely on the right track here.
Further evidence to your claim: the flavor text for interacting with the fountain you mention In the Bathroom
Perhaps it has something to do with the Lonely Door realms’ function as a place of recreation and retreat?
Most entities inside that Door are either seeking the Bathroom - a place Froggy associates with avoiding responsibility, or the Purge Event, which is illegal and fun and absolutely not what anyone’s ‘supposed’ to be doing. Point being, the main draws of the realm are how it can distract you.
So under that lens, I could see the smoke functioning as an illusory veil; something that lets you blind yourself to your true circumstances, and indulge in the lie of comfort.
Another thing to note is Froggy’s reaction to the smoke. He compares it to cigarettes and also… naphthalene? The compound in mothballs? Both these are objects which pollute and poison the air, one more intentionally than the other. It clearly has a hazardous impact on him, but other entities seem to prefer its presence - perhaps exactly for those effects?
There’s also the elephant in the room of the Bathroom having weed leaf decals on its walls.
I vaguely remember hearing that those leaves have non-drug related symbology, but the initial impression remains. It certainly does no favors to the smoke’s seeming purpose as a recreational vice.