Just had a wacky edge case happen in the app. I'm 90% sure it's legit, but I wanted to confirm -- and tell the story! :-)
Fanatic is Undaunted. Lava Flow happens, and starts out by doing 4 points of damage. But Obsidian Field is in play, upping it to 5 points. Undaunted lowers the 5 to 3. But then Wraith's two Mega Computers kick in, each reducing the damage by a further 1, down to a new total of 1. And finally, Undaunted kicks in with its *other* sentence, and prevents the damage entirely!
It is 100% legit!
Yep! And the order you choose to have them take effect totally matters =)
Pretty wacky.
I ran into a similar situation with cards vs. Amby, Wraith had stun bolted him, and had smoke bombs out.
Amby goes to hit for 5 damage (boosted somehow), it gets Smoke Bombed to Fanatic, who has undaunted.
I ended up ruling that Smoke Bombs applied reduction immediately on redirection, so that Undaunted could not reduce the damage.
I'm wondering if that was correct now.
To test this I think an EPE would be required. Any easier way to trigger smoke bombs and send 5 damage to Fanatic?
Lots of Obsidian Fields? 
Baron Blade playing Devious Disruption with at least 3 Ongoing/Equipment cards in play?
Nice! The edge cases are a lot of the fun of the game.
Has it been ruled that the order of damage modification is entirely up to the players?
Yes, it was later ruled that way. Cards are applied in order played during Start/End phases, but otherwise in order specified by players.
Not according to my current understanding. While the different kinds of damage modification have a defined priority, the order within a category (e.g. Change Damage Amount) is up to the players.
Well, sort of. See my comment immediately above. Also, see discussion here: https://greaterthangames.com/forum/topic/damage-effects-timing-meta-question-6141
Yeah, that makes sense. The order would be (according to that link):
Make Irreducible (if applicable), Change Damage Type, Check If Immune, Increase or Reduce Amount, Redirect or Prevent Damage.
If you deal damage to multiple targets you get to choose the order, but if damage you deal causes response damage you cannot choose to continue the original damage before moving on to the new damage.
What I wonder is if Smoke Bombs works like that, redirecting the damage causes a new reduction to trigger, whether that happens immediately or if it enters the stable of reductions and increases is the question.
In the link I made above, the claim is made that "If a redirect does occur, then modifiers before the redirect are re-evaluated from the start of that sequence until damage is actually dealt." So the -1 from Smoke Bombs gets added to the (newly re-evaluated) list of Damage Amount Changes.
This sort of thing can be easily observed in the App, though seeing it with Smoke Bombs in particular can be tricky, since SB's reduction doesn't itself involve any choice. But whenever damage gets redirected from a source that has Twist The Ether on it, the player ends up making both of the TTE choices (type and amount) twice, once for the original target, then again once the new target is chosen.