Well, I am not sure, what happened exactly ...
So first some common things. MPFB normally was designed to get a character from MakeHuman to blender, so with all it's assets and materials. This should always work. This way is normally done with "default" presets in MPFB settings.
It can also be used as a base for MakeClothes or MakeTarget and therefore the other presets were designed. So for makeclothes you have to load the makeclothes presets and for maketarget the one for maketarget. In this case don't add other clothes ... although it should not cause trouble.
These presets for makeclothes should work out of the box, but It is possible to overwrite them what of course will cause some trouble then! If you are not sure about that:
The presets are saved in the blender configuration path. If you saved them with wrong parameters, simply delete them, they will be rebuilt with standard values when used again.
(linux path is <HOMEDIR>/.config/blender/<blenderversion> ... there are files called makehuman.makeclothes.settings.json, Windows must be similar)
Btw. the grey character in your image is the correct one for makeclothes, so it is below origin, yes. The position of the other character looks like "default" settings.
Smoothing in MakeHuman is this button:
- smoothing.png (22.59 KiB) Viewed 6582 times
Do not use it here.
Smoothing in Blender is subdivision surface algorithm, it is doing the same (catmull-clark algorithm), but as long as it is not applied it should not cause trouble for the human. But it will work for clothes, so I recommend to switch off "allow modifiers" in makeclothes or to delete this modifier completely. As long as you create clothes it has no real benefit, it is mainly for rendering.
Shading smooth or flat does not change geometry and has no relevance, except smooth looks better on body and clothes.
If you have helpers available you can see here:
(btw. I took a character with clothes, I used my "baby romper", it also works)
You can also make the helper visible by switching the mask modifier off like in this picture:
Technically "extract clothes" is only selecting and duplicating part of the mesh. If you select all the vertices of the red tights, duplicate and separate it normal way in Blender you do the same manually. It will also work ...