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I understand that we use adjectives with verbs of sensation e.g. He smells bad.
But can we then say "he smells bad of liquor?" - does that not sound wrong. I usually hear "he smells badly of liquor". But badly is an adverb so how can we use an adverb with a verb of sensation?
Comments  
With verbs of senses, the adverb rules don't seem to work too well.
She looks gorgeuos. (not gorgeuosly)
This wine tastes very flavorful. (not flavorfully).
Anonymous"he smells badly of liquor"
I would never say that.

For your sentence:
He smells bad
He smells like liquor.
He smells of liquor (would be fine)
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Adverbs can modify verbs, adjectives or other adverbs. In the phrase "He smells badly of liquor" badly is an adverb which modifies the adjectival phrase "of liquor." This is entirely consistent because the verb of sensation is still used with the adjectival phrase "of liquor."