Symptoms
When attempting to create a SmartObject off of a Stored Procedure from a SQL database, there is only an Execute method available, rather than a List method.
Diagnoses
Because they are known to causes issues with "SET FMTONLY", K2 does not support the use of temporary tables in Stored Procedures. More information is available here:
http://help.k2.com/displaycontent.aspx?id=7349
Resolution
Rather than a temp table, a table variable should be used. This should resolve the issues. The above documentation has some more options as well.