I dragged in a separate image with a transparent background, and photoshop auto-created a white background. When I go to delete it with the magic wand it says "smart object cannot be directly edited." How do I get the white parts out?
TLDR: instead of deleting the selection, go to Layer > Layer Mask > Hide Selection
But you have to know that: When you drag images to an artwork, photoshop rarely creates a white background for it. Probably your original image has it. If you really want to delete the white selection open the layers panel Windows > Layers then find the layer to edit and double click it. The image will open and then you can select the white area with magic wand and delete it.