Now that I think more about it, you might look at it from the scenario of what is best psychologically, too. German's what, 19, maybe 20? Based on the XC season, he wasn't 100% for whatever reason: he's not going to run 3:56 out of the gates this indoor season- likely wouldn't sniff 13:25 either.
Maybe Smith is being smart and taking off the pressure to live up to his (and everyone else's for that matter) expectations. He's going to let German try an off-distance so he can set some PR's- doesn't matter who you are, setting PR's is pretty awesome, builds confidence, motivation and a belief that what you're doing in training is working.
Running some 800's is simply Smith's way to put German in a win-win scenario.
A: he's not going to get ripped by anonymous letsrun posters when he runs 4:03 and
B: no matter how he does in the 800's, it's going to be a fun experience, he'll have 1:4x to his name and he'll earn some PR's in the process.
That doesn't sound like such an awful thing to me in the whole scope of a career.