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Well, in a way you also regularize by using the "smeared" operators, and that's very physical. Already in classical electrodynamics plane waves are mode functions, i.e., a calculational tool to solve the Maxwell equations for physically realistic fields, i.e., for fields with finite total energy, momentum, and angular momentum. It's just using generalized eigenfunctions of the appropriate self-adjoint operators (in this case the d'Alembert opertor).A. Neumaier said:It is a physically motivated renormarization scheme replacing old-fashioned QFT, making regularization unnecessary. Why should one still want to regularize?
Indeed, of all the attempts to make QFT mathematically rigorous this causal-perturbation-theory approach with "smearing" the distribution-like operators is the most physically plausible, and I have no quibbles with it in principle. I only don't see, what one gains from it physics wise, i.e., to calculate physically observable quantities, which cannot be calculated within the standard scheme. In standard PT dim. reg. is very convenient as a regularization scheme, and the renormalized theory is anyway independent of the regularization scheme. You can also do the subtraction in a BPHZ-like manner without intermediate regularization, but that can be tricky, and dim. reg. is just more convenient.