IMO, there is nothing to fix, at least not for 1.2, other then making SMS and STANDARD input modes more distinguishable.
That's the whole point. If it tricked me, than I think it will trick many
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I've got to be honest, I don't see the logic for making the SMS keyboard behave differently in this way.
The onscreen keyboard has a 'delete' button, so if someone wishes to delete something, there is no reason why they cannot use it. The only difference between normal and SMS data entry is the ability to type letters by using the number keys on the remote.
Longer term, it would be nice to have skinnable normal and SMS keyboards, so that a user can clearly understand which keyboard they are using and how it should behave. However, this is not for 1.2.
Mark