the tree people have done a cover of "bigmouth strikes again" which i kinda like. also, mikel erextum, a latin pop star, did a spanish cover of "there is a light that never goes out." which is really beautiful (although nowhere near as gorgeous as the original, naturally).
also, while it's not exactly a cover, a german friend turned me onto a song which namechecks the smiths called "sumisu" by farin urlaub, the lead singer of die arzte. it's about growing up a depressed teenager in the eighties and listening to "the smiths, sometimes the cure or new order, but usually the smiths." it's in german, which i don't speak, but i can still make out that bit! the riff is awesome -- borrowed from "what difference does it make?"