reader@newsguy.com writes:

> Setup:
>   Gentoo linux  2.6.18
>   GNU Emacs 22.0.92.1 (i686-pc-linux-gnu, X toolkit) of 2006-12-21
>
> Using M-x eshell `ls' behaves as ecpected and displays the colors.
>
> Should I be able to run M-x shell (not eshell) then `ls' and not see
> escape sequences?

You may want to use M-x ansi-term RET
(Mind the change in keybindings!)

-- 
 |      Michaël `Micha' Cadilhac     |  Un certain Blaise Pascal              |
 |         Epita/LRDE Promo 2007     |    etc... etc...                       |
 |  http://michael.cadilhac.name     |  -- Prévert (Les paris stupides)       |
 `--JID: michael.cadilhac@gmail.com--'                                   -  --'