Incoming SMS
You can intercept an incoming sms thru sms listener using Broadcast receiver.You can modify the incoming sms or destroy it so that it does not reaches inbox.
Outgoing SMS
You can listen for outgoing sms by putting content observer
over content://sms/out
but you can not modify it with the native sms app.You can obviously modify the content of content://sms/out
but it has no point.