I.e., could I configure a client such as AIM, Jabber, Skype, etc. on my phone and completely switch off SMS altogether?
Would the sending party be alerted that their SMS won't go through?
I cancelled my SMS plan and use iMessage with people who have iPhones and Google Voice with people who don't. Both are free.
I can still receive SMS messages, but I get charged for them (but it's exceedingly rare that I get one). My wife opted to block all SMS messages. If someone sends one to her they do not get any notification that it is not received.