If the driver has a cap in it, it should act against the sense resistor smoothing the voltage over it. However it may not do anything to smooth the current through the diode.
Basically, it is only possible to convert voltage by two means: inductance and charge-pumping. A LED won't mind, but a LD will as it is a lot less forgiving.
If there is a soft-start type LD driver connected on the output the situation is a bit different though. Then you are essentially using the drivers soft-start and cutting it off with the pwm to restart it, only letting it ramp up a bit. Even at low pwm and full ramp up the peak current will be limited by the driver and your power output will be adjustable "on average" but will still be full current for parts of the period and zero for the off part.
Basically, it is only possible to convert voltage by two means: inductance and charge-pumping. A LED won't mind, but a LD will as it is a lot less forgiving.
If there is a soft-start type LD driver connected on the output the situation is a bit different though. Then you are essentially using the drivers soft-start and cutting it off with the pwm to restart it, only letting it ramp up a bit. Even at low pwm and full ramp up the peak current will be limited by the driver and your power output will be adjustable "on average" but will still be full current for parts of the period and zero for the off part.