|First, hundreds of millions of iPhone owners are perfectly happy with the stock app. And obviously Apple isn't restricting SMS apps, because even though you find the ones that are in the App Store (such as TextFree), to be deficient, they are there.|
Did Apple reject iOS versions of Handcent or BiteSMS? Are you sure of that?
In any case, the shortcomings you've brought up, in total, appear rather minor to me, in the grand scheme. Obviously, they were major enough to you to jailbreak your phone over it. The vast majority of iPhone users aren't as bothered, evidently.
(The Emoji keyboard works very well to easily insert emoticons in Messages, btw. A ten year old girl showed me how to do it. Just enable the keyboard in Settings, and you can see.)
Oh, and you misunderstood the Steve Jobs line about customers. He said that you can't ask customers what they want, because they don't know what they want.