Do you mean over USB?
Sorry, I have lead you astray. I should have mentioned I am syncing to my Exchange Server (not directly to Outlook like you could do with "Activesync" via USB or Bluetooth).
I am syncing exactly the same as Win6.5, via my data connection via 3G and it is working perfectly. In 6.5, it also included the SMS messages without turning on an option.
I never sync'd through the USB cable.
W7P is syncing perfectly over the 3G connection to my Exchange Server, but not the SMS messages which it seems as you state, isnt availble in a real W7P device either. MS must have decided to remove that option before release (the documentation I have read that says it is there seems to be "pre-release" documentation).
Sorry if I confused anyone.
As an Exchange "expert" I thought I should shed a bit of light on this subject.
EAS (Exchange Active Sync) is the protocol used to sync email, calender, free/busy, etc between your mobile phone (and in many cases Outlook) and your Exchange server. There are new features added to the EAS on every release of Exchange.
With Exchange 2010 MS introduced SMS sync for WM 6.5. I've tried this, and it worked as you would expect.
WP 7.0 did for some reason not include all the EAS features that WM 6.5 did. WP 7.5 added a few new features, but alas no SMS sync.
There is an article from MS that describes what EAS features are available for WP 7.0 and 7.5 here:
http://social.technet.microsoft.com...tions-when-using-windows-phone-7-clients.aspx
The reason MS gives for not supporting all EAS features on WP 7.x is: "It's important to note that Windows Phone 7 (WP7) primarily was developed as a consumer device and not an enterprise device. As a result there of many of the enterprise oriented features we had in Windows Mobile 6.x aren't available in WP7."
I really do hope this is not the case for WP8 as well - that it's still thought of as a consumer device with less enterprise functionality than WM 6.5. If so, I fear WP8 might be.... doomed?