Thanks to Android Police we can say almost for sure that SMS/MMS integration is coming to Google Hangout. As you know, Google has joined together the two messaging apps: Google+ Messenger and Google Talk to create Google Hangout
Now, after a few months of waiting, it seems that Google has finally decided to add SMS/MMS support directly into Hangout. Apparently this will be Hangout 1.3 and will also allow video sharing via the Hangout protocols.
How will SMS work in Hangout?
Whenever you send an SMS or you receive one, it will be indicated by a 'via SMS' message. This is how you will differentiate SMS messages from Hangout messages. You can also request for SMS delivery reports, the same as you do with the current messaging app.
You will be able to sens MMS message containing pictures, while video MMS is not yet confirmed.
The release date for the update is unknown. We are still waiting for Android 4.4
to be released, so we still have to wait.
The Google Hangout Settings menu should look like this:
As you can see, you can choose whether you want SMS integration in Google Hangout or not. Other settings such as Delivery reports, auto retrieve MMS messages and roaming settings are also available.
In short while you should see the update popup in Google Play. SMS integration is something that a lot of people have been waiting for, and now the only thing that Google has to integrate with Hangout is Google Voice. Then, the app will be complete.