This paper presents an alternative formulation of the ASPH algorithm for evolving anisotropic smoothing kernels, in which the geometric approach of Shapiro et al. (1996; Paper I) is replaced by an approach involving a local transformation of coordinates to those in which the underlying anisotropic volume changes appear to be isotropic. The ASPH method is presented in 2D and 3D, including a number of details not previously included in Paper I, some of which represent either advances or different choices with respect to Paper I. Among the advances included here are an asynchronous time-integration scheme with different time steps for different particles and the generalization of the ASPH method to 3D. The shock-tracking algorithm described in Paper I for locally adapting the artificial viscosity to restrict viscous heating just to particles encountering shocks, is not included here. Instead, we adopt a different interpolation kernel for use with the artificial viscosity, which has the effect of spatially localizing effects of the artificial viscosity. This version of the ASPH method in 2D and 3D is then applied to a series of 1D, 2D, and 3D test problems, and the results are compared to those of standard SPH applied to the same problems. These include the problem of cosmological pancake collapse, the Riemann shock tube, cylindrical and spherical Sedov blast waves, the collision of two strong shocks, and problems involving shearing disks intended to test the angular momentum conservation properties of the method. These results further support the idea that ASPH has significantly better resolving power than standard SPH for a wide range of problems, including that of cosmological structure formation. (Abridged)

92 pages, includes 58 Postscript figures. Accepted for ApJS. Several discussions expanded and 3-D tests added compared with previous version. Higher resolution version available at http://www.astronomy.ohio-state.edu/~owen/Pubs.html . Inquiries to mikeowen@llnl.gov