First an attempt at a counterexample. Theorem 5.2 of the paper
- Peter W. Michor: The moment mapping for a unitary representation. Annals of Global Analysis and Geometry 8, No 3 (1990), 299--313. (pdf)
shows (in a simple way) that for a unitary representation
$\rho: G\to L(H,H)$ there is the the Frechet subspace $H_\infty \subset C^\infty(G,H)$
consisting of those $v\in H$ such that $g\mapsto \rho(g)v$ is $C^\infty$ from $G$ to $H$,
and, in general, $H_\infty\ne H$. For the regular representation of a compact Lie group $G$ on $L^2(G)$ we get $L^2(G)_\infty = C^\infty(G)$.
However, for a unitary representation as above, the map $\hat\rho:G\times H\to H$ is only separately continuous, thus $\rho: G\to (L(H,H), \|\;\|)$ is not continuous, and we do not get a counterexample.
Attempt at a proof:
For $ 1\le p\le\infty$, consider the space $W^{\infty,p}(G)$ of all $f\in C^\infty(G)$ such that $R_Xf\in L^p(G)$ for all $X\in\mathfrak g$, where $R_X$ is the right invariant vector field corresponding to $X$. Then $W^{\infty,2}(G)$ is a Frechet algebra under convolution, because $W^{\infty,2}\subset W^{\infty,1}$.
Now we get an algebra homomorphism $W^{\infty,2}(G) \to A$, which is continuous by theorems about automatic continuity of algebra homomorphisms between Frechet algebras (Papers by Ernest Michael, if I remember correctly), thus smooth.
We seem to be near smoothness of $\rho:G\to A$.
Moreover, $\rho: G \to L(W^{\infty,2}(G),W^{\infty,2}(G))$ is smooth since every vector is smooth (where $L$ denotes all bounded linear mappings).
Continuation of the proof attempt. Let $h_\epsilon\in W^{\infty,2}$ be an approximate unit:
$h_{\epsilon} \star f\to f$ in $W^{\infty,2}$ for $\epsilon\to 0$ (a suitable sequence of smooth bunmp functions). Then $(\rho(g)h_\epsilon) \star f\to \rho(g)f$.
Then $g\mapsto \rho(g)h_\epsilon$ is smooth $G\to W^{\infty,2}$ and thus smooth $G\to A$.
Now it remains to prove that for $\epsilon\to 0$ this converges in $C^\infty(G,A)$.
Lots of things remain to be checked.
Second proof:
If $\rho: G\to A$ is norm continuous, and if $t\mapsto g(t)=\exp(tX)$ is a 1-parameter subgroup in $G$, than the usual proofs in books on Lie groups (see 4.21 of here) show that
the continuous 1-parameter subgroup $t\mapsto \rho(g(t))$ in the Banach Lie group $A^{inv}$ of invertible elements in $A$ (which is open in $A$, with exponential mapping $\exp:A\to A^{inv}$ which is a local diffeomorphism) is smooth. But this proves, as usual (see 4.2 as cited above), that $\rho:G\to A$ is smooth.