Actually my eel leaves them alone. I think it is due to a few reasons...
1. I keep the eel very well fed
2. Damsels are too fast for him
3. My tank is large enough to provide "territory" for all of them
I was worried at first about introducing a snowflake in my tank but a friend of mine who has had one for over a year now told me how to handle his potential appetite for live fish. Unless my eel is a rare example, I think the key to keeping snowflakes and small fish in the same tank is to keep your eel very well fed. Snowflakes are about as blind as a bat and unless he gets hungry, he never ventures out from the sandbed. I staggered my live rock to allow low areas for the eel and high areas for the fish. I have yet to see the eel swim upwards towards the upper layer of live rock.