The sm_dmlite issue only appears to occur when sm_hats is loaded, so I'm reasonably sure it is somehow causing it. Until I can solve that issue, I have to leave sm_hats disabled
Another thing I forgot about is a few players have complained that their glasses show in front of their FOV at certain times, I think even reconnecting did not help and they had to remove their glasses.
EDIT: I have noticed this when spectating bots as well as the occasional player.
EDIT2:
The issue with sm_dmlite does not in fact occur on spawn but rather later after the player gets a kill, they are then stuck with nothing but a knife. (I have seen players running around without a knife, so that may possibly occur at spawn)
I have disabled sm_hats for the night and will see if the issue occurs at all, if it does not, it is directly related to this plugin.