I have a touch HD and this is working on mine.
To check if you have it on yours or to switch it on, open a new text message, open the input method by touching the up arrow and then select the Touch input settings tab. In there make sure "Word completion in T9 Mode" is selected.
When you then type it should show the word completion bar above the keyboard type you are using. I use Finger keyboard2 (do a search on this site) with mine and the word completion switched on...works a treat.
Hope that helps you out