The stock Contacts already does Groups, albeit poorly:
Menu -> Display Group -> (select "All" or some group) -> OK.
This lets you see all contacts from only a single group. You then do the same again to view all.
To send sms messages to all users in a group, you'll most likely need a 3rd-party app; I never use this but I can see that Handcent does it like this:
Handcent -> ("compose" icon in top-left) -> ("+" icon in "To:" bar) -> select tab "Group" -> select the group(s) you wish to message.
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