Without LCC installed, Smooth Scrolling is fixed on 10.12.2.
Since I prefer my specific LCC settings for scrolling (1/2 tick for speed, 1 tick for acceleration), I tried installing LCC (v3.9.5) again. After installation (and reboot), Smooth Scrolling works great, but highlighting text+scrolling (to highlight) still loses focus on the selected text.
(Reminder: to uninstall LCC, go to Finder's "Go" menu -> Utilities -> LCC Uninstaller)
After uninstalling LCC again, I confirmed that scrolling+highlighting works fine.
10.12.2 did not fix my problem. Scrolling seems smooth enough, but I still have the unbearable lag when I grab something with the mouse button and use the trackpad to move it. (That's how I work; the mouse is only for the buttons and scrollwheel -- left hand -- and the trackpad is for moving around on the screen -- right hand. It's an edge case, but it works for me and I find it the most efficient way I've ever worked. Two-handed like that is very "minority report" and it saves my wrists.)