Happiness is sometimes said to be the standard of value in Objectivist ethics. Or it's put into the phrase "Life and Happiness" to describe how you should select your actions. We've already seen how life is the standard of value, so clearly happiness isn't. But there are connections there that need to be made.
First, I wrote an article on Happiness a while back that sheds some light on what exactly we're talking about.
The first thing to note is that happiness itself would make a poor standard of value, since it is an emotional response. As we've already seen in the past, emotional responses are based on our value-judgments. Trying to use your emotions as value-selectors is at best circular.
But there is a connection between life and happiness. The two go hand-in-hand, and it's not proper to think of Life as the standard without understanding the connection to happiness. A well lived life, if you understand and appreciate it as such, does lead to happiness. Happiness is the response to such a life. It's not a separate thing that you can pursue by alternative means. You can't achieve happiness by performing actions that destroy your life. It's possible to gain some kind of emotional or physical pleasure from those actions. If you misidentify what's good for you, or if you evade the consequences of an action, or if you believe that sacrifice is moral, you may feel good for performing a destructive act. But happiness is not a single, isolated emotion at a particular time. Those feelings of pleasure are short-lived, and the destruction you set upon yourself will make sure of that. To make the point, Rand defined happiness as the state of non-contradictory joy. The pleasure you gain from an action can be offset by the pain it causes, or the values you know you've given up, etc.
In the article above, I gave the example of drug use as a potentially destructive act that might lead to short-term pleasure. But it's not hard to see that the drug-addict, who loses his friends, his means of providing for himself, his self-respect, and potentially his freedom if he goes to jail, is not going to be happy. The drugs act as a means of evading the knowledge of his bad life, to avoid the emotions that would come from it.
The point is that happiness can't be achieved by selling your life short. Happiness is interwoven with your life. You pursue happiness by pursuing your life. And the extent to which you live your life well is the extent to which happiness is possible to you. Happiness is the reward for a well-lived life.