It has been pointed out to me that when clicking on the 'Add' button, in the screen which pops up, there is actually a dropdown menu where you can select the credential type. It just so happens to default to 'Username with Password', but 'Sauce Labs' is also on the dropdown.
From a user standpoint, it would be much nicer if 'Sauce Labs' were automatically selected. Otherwise, the user might just go ahead and create a 'Username with Password' credential, which obviously won't work with the Sauce plugin.
When the window to create a new credential pops up, 'Sauce Labs' should be pre-selected as the option.