I did exactly what you showed and i can successfully receive SMS BUT when I reply to that person that sent me and SMS (and he has iMessage but can't use it offline) it sends it to them as iMessage.. (and there is a little red exclamation point showing me "message can't be sent")
The person Im using to test them as an iPhone with iMessage turned on, BUT turned off there wifi and 3g....
WHAT DO I DO????
(sorry for the crappy explanation...hope you understand me)
I think you need to test it with someone who doesn't have an iPhone. Im pretty sure that this would cause some sort off conflict because you're trying to use iMessage to send a SMS to an iPhone that has iMessage turned off. Give that a shot for now...