In Liz Ten's message to herself, she says that forgetting will allow her to "be again the heart of this nation, untainted." I think she and this episode are operating under a romanticized version of monarchy where the queen is the spiritual leader, and if she were to go on ruling while knowing about the whale it would destroy her soul and turn Britain into something even more corrupt than the police state with conspiracy of amnesia that they already have. Only a few morally tainted people know the whole truth, and they use the Smilers to do much of the work. *shrug* It's not the most efficient system, but I guess it makes sense 1,300 years in the future.

The people are scared at the beginning of the smilers. They know that people who screw up can be sent down below. They don't remember what happens below or any of the secrets that the smilers protect, but they know how to be afraid of the government. As for the kids, my guess is that they are sent below so that when they get older they can be turned into the human-smiler hybrid things. No evidence for that, but it's my current theory.

I think that was only the pain center of the whale's brain sticking up through the floor, with the brain presumably carrying on for a good long ways below the floor.

This whole episode is rather full of things that don't make sense. Oh well. Coming up with kooky theories to try making sense of it is kind of fun.