The Smart ForTwo only makes sense if one lives in a crowded city with crappy parking. For its size, the Smart ForTwo gets rather poor mileage; the EPA rates it at 33 city and 41 highway. The Honda Insight I mentioned above beats both those figures easily, while not costing that much more and being much more practical in terms of carrying stuff; he could actually take 3 coworkers out for lunch in it for example. Plenty of compacts and sub-compacts can get close to the Smart ForTwo in mileage, high 20’s low 30’s in the city, and high 30s to 40 mpg on the highway.
Good to know. Smart move by Honda.
Check out the Jetta Sportwagen TDI. I drive in excess of 35,000 miles a year and got tired of dumping $500 a month into the gas tank of my Silverado. Since October I’ve put over 10,000 miles on my TDI without a single glitch. In combined city and highway driving I’ve never gotten below 37 MPG, and the turbo diesel has enough torque that it doesn’t struggle going over the 10,000 ft passes here in Colorado.
Yup, I got about 39 highway in my Hyundai Accent – which I loved, but I didn’t recommend to the OP because sporty it is not. 
Smart always seemed a bit of a ripoff in that regard. Why is the mpg so low?
Another vote for the Honda Fit. Good MPG, and the interior room is awesome, especially if you fold the back seats down. I’m nearly six feet tall and overweight and don’t feel cramped in it, even with my kid in the car seat in back.
I’ve been driving the Kia Soul alot with Zip Car. It’s a great little car with lots of storage space and you can load with every option available and it is still very affordable.
Good choice; I have the Audi A3 TDI, which is basically a luxury JSW. I’ve put 12,500 on mine since February and regularly get 35 MPG in town & 40 on the highway.
You might check out the new Hyundai Elantra. The 2011 model, which just came out, is rated at 40 MPG on the highway. Consumer Reports rated the previous generation, which I have, the top small car, and they say the new one is much sportier. (YouTube link to their review)
If you’re looking for something even sportier, you might want to test the Mazda 3. We had a 2006 base model that we liked a lot, even though it had the smaller engine and tires. Not sure how the fuel economy compares, though.
I was car shopping a little over a year ago and gravitated to the Hot Hatch cars. After much research and test driving it came down to either the Mazda3speed or VW GTI.
The Mazda is ugly, but it is probably the fastest car in this class. It’s brakes are far better than most cars.
I bought the VW, because it looks better and is a whole lotta fun to drive. These cars aren’t “muscle car” fast, but they are totally fun on the curves. My VW takes those roundabout onramps that say 25mph easily at 50.
Give VW a test drive!
We have a relatively new Mini Cooper Clubman with the sport package. It is seriously fun to drive, and bigger inside than you might think. We bought it largely for Mr.Q’s commute - he wanted something “cool” and fun to drive that got good mileage. The interior is full of gadgets. Four adults fit comfortably. You can fit pretty much stuff in the back if you fold down the rear seats, and we can take the family of four on a grocery store run and squeeze all the bags in the back. We’ve even taken it on vacation. Right now, our combined mileage is around 29-30. That includes a lot of time commuting in bad traffic. I’m not all that sure how much it cost (some things I’m happier not knowing), but I think they’re in the mid-20s.
The one downside so far is that it had an issue with the turbo. I’d read up on that if you think about going this route.