Butter in baking

Butter is not only fine, but extremely common in baked goods. I think the piece you're missing here is that the oven temperature is not the same as the temperature of the baked goods.

The internal temperature of most baked goods never even goes above boiling, unsurprising since there's at least a bit of moisture in there. While the exterior does get hotter, it's generally just a thin layer that browns, if any - bread has crust, some cookies brown on the bottom, and so on. And this isn't any less desirable than, say, getting some browning when sauteeing vegetables in butter.

So sure, I don't think you want to deep fry donuts in butter. But it's an ubiquitous ingredient in baking, with absolutely no issues with the smoke point.