No, pruning in ethereum means not storing old states (=results of executing all blocks at height H), not removing old blocks. As of now the bare blockchain + the state takes only about 20+2GB. It takes more on a live node due to db space amplification (45-50GB in parity), but that can theoretically get very close to 1x with future updates.
Smart contracts can have arbitrary state, but in general, yes. An archival node stores the state for each block which is only useful for block explorers and similar. That's indeed likely to take 1TB in 2018 - hardly a problem.
