So far mintty has been a good improvement to standard sh.exe and even Console2.  I love PuTTY's interface, and mintty is derived from that.  Favorite feature: wrapped-line copying doesn't insert newlines.  Here is how I installed it:

Download mintty-msys zip file from http://code.google.com/p/mintty/
Extract mintty.exe to (MinGW installation root)/msys/1.0/bin/
Create Windows shortcut to mintty.exe
Edit shortcut properties
Append this to the shortcut Target: /bin/sh --login -i

Now the shortcut will start mintty with the MSYS shell.  You can change options by right-clicking on title bar and choosing "Options".  I changed "Mouse" > "Right-click action" to "Paste", since that's what PuTTY does.