Thanks for summing up these valuable considerations. This is what helps the industry improve the end-user experience. It also perfectly supports some previous studies we did as a company a little while back!

We have consider though what the target audience of an SMS Chat service is as this heavily impacts the design priniciples of such a service.

In my opinion SMS Chat is (contrary to community based chat services like MSN) aimed at improving the plain SMS services everybody knows. In other words: it’s not targeted at a certain community but at the mass.

Design criteria for mass communication services are:
- simple user interface (like voice, sms, google, etc)
- high reliability (you rely on SMS so it should work ALWAYS)
- interoperability (as you rely on messages to be received)

Looking at you SMS Chat suggestions, the question should be raised what is required to implement on a device/client and what can be dealt with in the network?

Looking at the list of your requirements (see below for a summary), most suggestions depend on a specific handset and/or client. In most cases (#1 to 14) this functionality is already available although neither wide-spead not standardised. An d that is EXACTLY what holds us back from making SMS Chat interesting. It’s of no use downloading rich clients if the recipient doesn’t see my message enrichments, right?

For mass communication services interoperability and standardisation is KEY. Thus, we may be best of (at least as long as dievces and clients are not standardised) making a number of network based improvements for the functionality you suggest.

The feature below remain to be highly client specific and applicability depends on users buying speicifc handsets and/or downloading specific client applications.
1. Message appearance on device -
2. Ability to copy/paste/etc
3. Ability to autocapitalize
4. Predictive text support
5. Hyperlink support
6. Sort, tag, group messages
7. Emoticon gallery
8. Larger input panel
9. Send button as softkey
10. Optional message notification
11. Call button - Avai

Possible today through mere network based optimisations and are already available today!
12. Auto text messages (out of office, etc)
13. Message encription
14. Signature inclusion
15. MMS support in chat
16. Message synchronisation with desktop

Interestingly enough you also suggest a number of features that rely on both client AND network innovations that we have been working on extensively and have recently implemented with 2 big operators in Europe already:

17. Integration of SMS, MMS and chat - Device/Network - Available