Problem with CRLF line endings and colored diff

Hello list!

I'm using CRLF line endings on the files of a project and I'm
running into odd output from 'git diff'.  Here are the steps to
reproduce:

    git init
    echo -e 'line1\r' > file
    git add file
    echo -e 'line2\r' > file
    PAGER='less -R' git diff --color

The output looks like this:

    diff --git a/file b/file
    index 495181c..a1413a4 100644
    --- a/file
    +++ b/file
    @@ -1 +1 @@
    -line1
    +line2^M

Note the trailing ^M on the '+' line.  After examining that line
it seems it's a bug in git, as that line really looks like this
(<...> denoting ANSI sequences or CR/LF):

    <GREEN FOREGROUND>+<RESET><GREEN FOREGROUND>
    line2<RESET><RED BACKGROUND><CR><RESET><LF>

The CR and the LF are not after each other, there's an ANSI
sequence in between (because the CR is being highlighted as white
space).  That confuses 'less'.  The '-' line above does not do
that and thus doesn't have this problem.  It also doesn't reset
the color between the '-' and the line:

    <RED FOREGROUND>-line1<RESET><CR><LF>

I tried poking around the code, but the diff machinery is more
complex than could be quickly grasped, so I'll let someone that
knows it already have a look.

Using git 1.6.0.2, but have the same problem with HEAD.

jlh