I got it working tonight (without the proxy issue) and tested the SMS feature. I sent an SMS to my cell phone number. The first text message I received said "The Yahoo! Messenger user "jeff.hester" has sent you a message. Reply with "y" to this message to accept. For more info, visit mobile.yahoo.com."
I replied via SMS with "y" and a minute or so later received the message.
Here's what the interface looks like in Yahoo! Messenger for Vista:
