Google has started rolling out the v2.1 update for Hangouts that brings with it quite a few major improvements and enhancements. The first notable change introduced in the update is the merged SMS and Hangout conversations — the lack of which right from the get go was frustrating and a poor oversight from Google. 

Users can now also select whether they want to send the recipient a normal SMS or a Hangout message. Just in case you don’t prefer the merged conversation, you can un-merge them as well. Other major changes include a Hangout widget for your homescreen, performance improvements, a simplified contact list, new notification sound and a prominent presence status.

Below is the full change-log of the update as posted by Mike Dodd on Google+:

• Merged SMS/Hangout conversations: SMS and Hangout conversations with the same recipient are now combined into a single conversation. You can control whether you want to send a message via Hangouts or SMS with the flip of a switch, and different message types will be easy to tell apart in the conversation. Of course, you can always merge and unmerge conversations if you’d like
• Highlighted outgoing Hangout messages
• Simplified contact list: now there’s two main sections in contacts — People you Hangout With, and Phone Contacts — making it simpler to navigate, and easier to use for SMS
• More Prominent Presence Status (on call, moods, etc)
• New Notification sound
• Separate voice and video call tones
• Performance improvements: today’s update includes better quality video calls, as well as improved SMS and MMS reliability
• Home screen widget: add the Hangouts widget to your homescreen for quick access to your recent conversations
• Long press on images to save media

While the company still has not merged Google Voice with Hangouts, the new update features many options and hints suggesting that it is already working on the matter.

As always, Google is rolling out the update in stages so it will not show up immediately on your device. You can, however, manually sideload the APK from here on your Android devices.