[Herman Melville]

Why does my sense of smell improve when I have a headache?

[MonikaS]

I don't think your sense of smell improves. It's just that your brain is more busy with processing the pain, so the normal mechanisms of adaptation to external inputs like smell, sound etc. can't work as efficent as they normaly do.

[sveur]

But how do you smell?

[BenV]

Those images go delightfully 3d if you allow your eyes to cross...

I think Monika may have a point - it's likely there's no physiological change in the olfactory organs, or particularly in the brain - it may just be a change in awareness.  That's just speculation on my part though.