AlertDialog from within BroadcastReceiver?? Can it be done?

Principal issue: try to avoid placing time consuming functionalities into BroadcastReceiver. It should just receive and initiate further processing in bound Activity/Service.

UPDATE:

Please check following sources that might be helpful:

Similar questions on StackOverflow:

How to send data from BroadcastReceiver to an Activity in android?

Android SMS receiver not working

Android SDK demo example:

android-sdk-windows\samples\android-8\ApiDemos\src\com\example\android\apis\os\SmsMessagingDemo.java

And of course standard Android API documentation: http://developer.android.com/reference/android/content/BroadcastReceiver.html

UPDATE2:

Added app skeleton as it should look. Please note that no content view is defined. It is because your app will have transparent screen. To achieve that

@android:style/Theme.Translucent

is entered under Theme tag for this activity in AndroidManifest.xml.

public class NotifySMSReceived extends Activity 
{
    private static final String LOG_TAG = "SMSReceiver";
    public static final int NOTIFICATION_ID_RECEIVED = 0x1221;
    static final String ACTION = "android.provider.Telephony.SMS_RECEIVED";

    @Override
    protected void onCreate(Bundle savedInstanceState) {
        super.onCreate(savedInstanceState);

        IntentFilter filter = new IntentFilter(ACTION);
        this.registerReceiver(mReceivedSMSReceiver, filter);
    }

    private void displayAlert()
    {
        AlertDialog.Builder builder = new AlertDialog.Builder(this);
        builder.setMessage("Are you sure you want to exit?").setCancelable(
                false).setPositiveButton("Yes",
                new DialogInterface.OnClickListener() {
                    public void onClick(DialogInterface dialog, int id) {
                        dialog.cancel();
                    }
                }).setNegativeButton("No",
                new DialogInterface.OnClickListener() {
                    public void onClick(DialogInterface dialog, int id) {
                        dialog.cancel();
                    }
                });
        AlertDialog alert = builder.create();
        alert.show();
    }

    private final BroadcastReceiver mReceivedSMSReceiver = new BroadcastReceiver() {
        @Override
        public void onReceive(Context context, Intent intent) {
            String action = intent.getAction();

            if (ACTION.equals(action)) 
            {
                //your SMS processing code
                displayAlert();
            }
        }
    };    
}