I guess it's just me; I'm having a grand ol' time with Hangouts. I do what moderator "NothingIsTrue" does, though (I mean our use cases are similar). Before, on my Galaxy Nexus, I would use an SMS app and also the Hangouts app (or GTalk). Now, I just use 1 app, Hangouts, to both send text messages (most frequently because I still unfortunately know many people without Hangouts or without Android devices), and Hangout messages, which I treat as instant messages and liken to my AIM days. If both options are available for the contact, I usually choose Hangouts (IM) first. The SMS/IM transition is pretty seamless for me.
For example, I open the Hangouts app.
A giant list of my recent convos appear, whether they were Instant Messages or if they were texts.
If I need to contact someone who I've not had a recent conversation with, I hit the plus sign in the upper right corner.
On this page, I can either use Google's recommendations "People You Hangout With" which lists people in the past I've IM'd; "Suggested People", which lists random G+ contacts I have or am following; or "Other Contacts", which lists all my phone's normal contacts from my address book. HOWEVER, I almost always just simply tap the very top of this screen, which is a search bar, and type the contact's name. Much quicker if I know who I'm trying to contact.
As an example, my mother does not have Hangouts, G+, or even an Android device. In my address book, I have her phone number listed and her e-mail listed. When I type "Mom" into this page, she quickly pops up as two things: An email address, which I can tap to quickly e-mail her, and a phone number, which I can tap to quickly text her. The phone number even has a nifty little grey "SMS" icon to the right of it, to make sure you know you will be texting this person if you choose the number.
Basically, Hangouts is a complete contacting app. I believe Google will be focusing on it being the one app you could use to contact any one of your contacts using any form possible: know their e-mail? e-mail them. Know their phone number? Text them. Know they use G+? Hangout with them through IM or video chat. All of this right from within one single app!
When you are in any conversation at all: text or hangout/IM, if the contact has multiple ways to contact them on your phone, simply tap their name at the top with the little drop-down arrow, and it lists every way to contact them. Say you're in a text convo with them but you want to switch to a Hangout with them: tap their name and simply select to switch to their Hangout form of contact - boom, it's magic.
Sorry for the length, but I think Google did a great job with the app with the exception that, in the conversation list, a Hangout and an SMS conversation with the same contact is separated, not threaded or connected in some way. It leaves the conversation list feeling a bit cluttered. This is nothing that Google can't fix very simply with future updates to the Hangouts app, and I'd bet money on it coming in the next few updates.
I seem to be able to SMS people just fine. Going to have to use it more to see how a several week feel goes. I don't want to rush to judgment after a few days.
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