If somebody puts a smiley at the start of some text you quote from a post. So in your quote that smiley is at the start before the text, then the smiley code doesn't get converted to a smiley image in the quote and stays as smiley code displayed.

Yet, if you have the smiley at the end of the text instead it gets displayed fine as a smiley image in quote.

It not only does it on my live forum running 3.1.2, but also on my WAMP localhost forum running same version. I also just tested it now on Area51 forum and same thing happens there.

Look at this test post I made there now:
https://area51.phpbb.com/phpBB/viewtopic.php?f=7&t=46515