Do you know, what is the state of the illumos ecosystem? What are the major distributions? Is SmartOS on top there?
SmartOS, as noted in another comment, is not a general purpose OS. It seems to have the most convincing story behind it for why you might choose it over Linux (but, it hasn't convinced me to do so). And, it has perhaps the largest organization behind it (Joyent).
Honestly, though, they all seem to be niche products or projects. There just isn't the kind of large community one would need to compete with Linux or even the BSDs. If it were a community that was growing, it would be less of an issue, but everyone involved seems to be old-school Solaris geeks who just want to keep working on what they know. Which is fine, and I hope it goes well for them. But, it doesn't look like the future (once again, I think SmartOS has the most compelling story for IllumOS having some small piece of the future).
I know others are joining the community as well as hanging around on irc shows. It definitly is a smaller community than linux or the BSDs but it is growing.
Also a lot of interesting systems development is happening (lx-branded zones, overlay networking, ...) in illumos and it is the upstream of openzfs.
Besides SmartOS a more classical server distribution to consider would be OmniOS [1]. For a storage appliance one might want nexentastor.
Distributions of illumos are more purpose-built than linux distributions. They differentiate more by use-case than by package management. Yet they all consume and contribute to illumos and what might look fragemented is not much of an issue for the community itself.
This is anecdotal data vs. anecdotal data, but I'm pretty sure the Illumos community is growing, and at an appreciable pace.
I hang out in several Illumos related IRC channels, and all of them have been gaining users over the past few years. I personally am a "recent" convert, inasmuch as I had limited exposure to Solaris, and did not make the jump to it (or rather Illumos-based) being a preferred distribution until the days of SmartOS and OmniOS.
Many coworkers of mine that have had little or no exposure to Sun/Oracle Solaris are now converts to SmartOS/OmniOS.
As far as company backing, besides Joyent, they also have Delphix, Nexenta, and Lucera. It's not like Joyent is the sole light in the darkness here.
I also don't really get the feeling that it is fragmented - you have two main distributions used by the largest groups of people in SmartOS and OmniOS, but even within those and the other open source versions/proprietary appliances, there's quite a bit of coordination and work to improve illumos on the whole. I don't think anyone in the community is unaware of the fact that the whole thing is smaller, and that they need to need to work together to keep things healthy.
For more general purpose servers, I think the current leader is OmniOS.
So zones make running nested SmartOS with KVM a bit uncommen. While possible there are not that many use cases besides development on the system itself.
The only place I've ever seem Illumos mentioned is in the ZFS community as a OS where ZFS is fully supported and fully integrated.
It seems like the majority of the ZFS crowd prefers running FreeNAS, NAS4Free or ZOL instead. So the only place I've ever seen Illumos mentioned, it still seems like a niché product.