Activate the SM Mode, by pressing Ctrl+S.
Open the System Creation Window, F9. At least I think it's F9.
Pick a suitable planet, Titan is a good one (It's a Moon of Saturn).
Click on it and click "Create Empire" in the SM functions menu in the lower right.
Don't bother with the other SM functions for now.
It will ask you if you want that race to be a methanebreathing race. Answer "Yes".
Set smeg up.
Finished.
Press F2, see if things are alright.
You can switch between different empires in most windows.
If you want to test at a specific test level, go to research and pick them, or click the "All research" Button in the lower task bar in the Economics window and choose up to which price you want to grant them free tech.
You should be pretty much set.
Keep in mind you can of course also create a race on a Planet that at first is uninhabitable.
To do that, create a colony on that planet with you main race or the SM Race, open Economics (F2), go to Environment, set the atmosphere up the way you need it using SM functions, then abbandon the colony and proceed to create an Empire on it like above.
Hope this helps.