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If an SMS conversation is started with a recipient not in any address book, Chats uses the number for the converstaion.

However, subsequently adding the number to an address book does not update the conversation to show the recipient's name.

This seems to be because Chats only modifies ~/.purple/blist.xml when the conversation is created, to add a contact entry. Manually updating the alias field and killing Chats fixes this.

So Chats should update blist.xml if it discovers a new contact in an address book that matches an SMS conversation's number (and also if the contact's name is changed subsequently).