Basic systems knowledge and understanding. Those "dixie cups" don't deliver 100% oxygen to each passenger. Also, they don't "seal" to the face like crew masks do. If the pax don the masks in a cabin smoke situation, they WILL be inhaling a combination of smoke, recirculated cabin air and some oxygen.
Bottom line, it may be a moral conundrum for the PIC, but deploying pax oxygen in a smoke situation may actually be contrary to the QRH.