Yes, it's insecure by the standards we would normally apply to software. But let's be honest - this is competing against SMS, not XMPP, Skype, et al. How hard do you think it is for someone to sniff an SMS?
Compared to this? Ridiculously hard. A5/1, while severely compromised, still requires heavy IOPS and computing power to break quickly with rainbow tables (see Kraken).
Even worse: this allows for trivial spoofing. You're far, far away from doing that with SMS.
Armed with this blog post and a laptop, you could start spying on IM traffic in your local coffee shop in five minutes. I don't know where you'd even begin with spying on SMS, but I bet that in the least it requires substantially more specialized equipment.
It's sent on the control channel, not the payload channel. But that's not the important bit - This is: to sniff wifi you need a computer with wifi and a freely available, easy to use program. To sniff GSM you need a rather elaborate setup.
It's not that it's "hard" to sniff SMS in a crypto-sense, it's just that that bar is a lot higher that sniffing unencrypted wifi traffic.
