Although we always liked the emoticon button on Windows Phone 7, we never liked how it kept it in ASCII form, not when other IM/SMS apps on other platforms do the conversion to a little graphic for you.
Luckily in Mango, this changes. We'll chalk it up to "not having enough time" for the original OS, but at least now when you enter in an emoticon, it gets translated to its graphic equivalent, adding a much needed and refined look to the whole chatting world.
And yes, it's the little things that matter on the OS and Microsoft gets that. This makes us happy.