Yes, it works fine with SME 5.0. The file to edit (at least as it installed on my system) is /usr/local/squidGuard/supdate. Once a week or so the file blacklist.tar.gz~ file that downloads does not have the ending ~ and the script fails because it is looking for it, but other than that there does not seem to be a problem.
The one thing I have found that does not work with SME 5.0 is the interface added to the e-smith-manager. It worked fine under 4.12 but stopped working on my after I upgraded to 5.0.
Tim Hogan