。
She has the bad habit of smoking.
Literal
She [topic-は] smoking [attributive-の] bad-habit [subject-が] exists.
悪習慣 is a transparent Sino-Japanese compound: 悪 ('bad') + 習慣 ('habit, custom'). The の links 喫煙 ('smoking') to the head noun as 'the [bad habit] of [smoking]' — attributive の doing exposition rather than location or possession. The whole sentence is the textbook 'Xはがある' frame for ascribing a property: as for her, the bad habit exists.