Google is about to push out a new update to Hangouts, bringing it up to version 2.1, which will bring forth some major changes for Google's messaging application. It will finally merge conversations, making it easier to keep track of your conversations between SMS, and the usual Hangouts chats.
This means if you were talking with a friend through SMS, but had a simultaneous chat with them through Hangouts, those two world's will collide. The messages will be visually distinct, so you'll be able to tell the difference between SMS and the instant messaging chat. The contact lists has been simplified, split into two sections: People you Hangout With, and Phone Contacts.
Video call quality has been improved, as well as SMS and MMS reliability. One of the surprise new features is a new homescreen widget, making it much easier to access your conversations. The updated Hangouts app should be made available later in the week.