I personally don't like the smith machine for squats, especially if you use those "manta ray" things that rest the bar on the top of your traps.
I would definitely say to give yourself some time to rest and heal before doing any other squatting, otherwise you may risk further injury. If the pain persists, see a doctor. hey thats why (I hope) you have health insurance!
Squatting is a great exercise, and I think it takes a while to get your form down using free weights. But start slow, and work your way up. If you are afraid of not having a spotter, then use the power rack to squat. put the pins at the top to hold the barbell, and place the safety bars further down--right below where the barbell reaches at the bottom of your squat.
Some other advice: squat using flat soled shoes (converse or squatting shoes). also the best way to gauge how good or poor your form is is to take a video of you squatting and analyze it later. do a search on knees and squatting, AFAIK they get stronger from doing ATG squats.
Good luck, and feel better!