--- a/hgext/color.py	Tue Feb 03 19:10:03 2015 -0600
+++ b/hgext/color.py	Tue Feb 03 16:24:32 2015 -0800
@@ -215,9 +215,23 @@
     mode = ui.config('color', 'mode', 'auto')
     realmode = mode
     if mode == 'auto':
-        if os.name == 'nt' and 'TERM' not in os.environ:
-            # looks line a cmd.exe console, use win32 API or nothing
-            realmode = 'win32'
+        if os.name == 'nt':
+            term = os.environ.get('TERM')
+            # TERM won't be defined in a vanilla cmd.exe environment.
+            if not term:
+                realmode = 'win32'
+
+            # UNIX-like environments on Windows such as Cygwin and MSYS will
+            # set TERM. They appear to make a best effort attempt at setting it
+            # to something appropriate. However, not all environments with TERM
+            # defined support ANSI. Since "ansi" could result in terminal
+            # gibberish, we error on the side of selecting "win32". However, if
+            # w32effects is not defined, we almost certainly don't support
+            # "win32", so don't even try.
+            if 'xterm' in term or not w32effects:
+                realmode = 'ansi'
+            else:
+                realmode = 'win32'
         else:
             realmode = 'ansi'