Actually, SMS integration with Hangouts was done quite well in my opinion, at least conceptually (I do admit there are still some wrinkles to be ironed out with the app itself). Sure, with the current version of Hangout w/ SMS support, the 2 services (SMS and Hangouts messaging) are essentially 2 separate services being managed by 1 app, and it's not nearly as seamless as iMessage is...but that's not really what I would want in the first place.
Hangouts may not be the best SMS app...yet, but when used for actual Hangouts messaging it works great. I love the fact that I can get my message on ALL my devices and desktop computer, group messaging works great, there's support for sending pics and even animated GIF files...and all of my friends and family can use it, even those with iPhones. The problem is, however, that simply not that many people use it. Yeah, most folks with gmail will be available when their browser is open, but most of my friends have never even opened the Hangouts app on their phone. I was really hoping that SMS integration would cause a lot more folks to use Hangouts, but it doesn't really accomplish that because it's not like you're forced to use the app for SMS if you don't want to (nor should you be...I'm just sayin')
The other thing that I'd really like to have with the Hangouts app is the ability to view if my contacts are online when I go send them a message (as it does on the desktop client)...that would make it easier for me to say, "Oh, Dave is on Hangouts, I'll just shoot him a message there" instead of, "I don't even know if Dave uses Hangouts...better just send him a boring 'ol SMS text message"
Long story short...what I really want... If I have someone's gmail address in my contacts, I want to be able to send them a Hangouts message and know they'll get it.