I would like to have vc-diff colorize the output so that added lines are in one color and deleted ones in another. Using Emacs 23.1 and putty/xterm-256color (list-colors-display shows 256 colors and color themes and such works as expected).
This is how it looks right now:
The package diff-mode-.el provides more colors.
You can customize the colors by either customizing the faces diff-indicator-removed and diff-indicator-added, or changing the variables diff-indicator-removed-face and diff-indicator-added-face to be faces whose colors/properties you like. There are also changed varieties of the face and variable.
Other packages for enhancing diff-mode can be found here.
To just modify the colors of the added and removed lines:
(custom-set-faces
'(diff-added ((t (:foreground "Green"))) 'now)
'(diff-removed ((t (:foreground "Red"))) 'now)
)
See Treys answer for a more complete customization.