2005 Prius Smart Key "Repair"?

Let it dry out. Take out the battery and let it dry. Stuffing it in a bag of rice helps, as does pure alcohol, or a sonic wave oven.

Otherwise, a trip to your dealer is in the future. It should work by plugging it into the slot no matter if the SKS feature dies

 

If the simple ways of drying the keyfob don't work, the next step is to open it up and give it a shot of circuit board cleaner (ask for it at Radio Shack).

The keyfob can be opened by inserting a pair of needle nose pliers into the mechanical key area, and spreading them. The glue will let go (mine did...), and you can dig out the circuit board with a miniature screwdriver. Be careful not to lose the transponder, a small 1/2" x 1/8" chip mounted separately in the case.

Clean off the circuit board, paying particular attention to the battery connectors. Scrape any corrosion off. May as well install a new battery (CR2032) while you've got the thing apart.

Hold the battery against the connectors (writing side away from the board), and verify that the red LED flashes when you press any microswitch (the 3 small white things). If that works, you've probably fixed the problem. If so, put the case back together. If not, the keyfob is toast.

Use a moderate strength glue to seal the case back up. Don't use epoxy, instant set, or any other strong glue or you'll never get it apart again. I've used ordinary white glue, and it held for several months, but then came apart.

Even if you can't fix the proximity/button functions, the keyfob will still be useful as a backup. The transponder chip is the only functional part used when you plug the keyfob in the dash, and it should be fine.

If you can't fix it yourself, the place in SF to go for Prius service is Luscious Garage | Blog | Full Service Prius Key Programming