Under 'Contact Type:' select jabber

Under 'jabber ID:' you will need to put your receipients number @sms. For instance if their number is 719-555-1212, you will put: 7195551212@sms

Under 'Alias:' put your recipients name, example: Chris

Make sure 'On Accounts:' your s.ms login is checked.

Click 'Add' at the bottom.