Every cover of a Dylan song is better than the original, Southy. Although All Along the Watchtower is the best of them.
My nominations are: Stepping Stone - Sex Pistols, Jacky - Scott Walker, I'm a Believer - Robert Wyatt, Police and Thieves - The Clash and Tainted Love - Soft Cell
The Deftones - The Chauffeur.
Tears For Fears - Ashes To Ashes.
Marilyn Manson - Golden Years.
Carter USM - Panic.
Divine Comedy - Make It Easy On Yourself (live).
Theres a song on the Dirty Vegas album (last track I think) where they cover "Another Brick in the wall" by Pink Floyd - tis very good.
Otherwise - Im with Tinx with Radiohead and the Manics (who also "covered" the tune from Mash - also tres good).
I once saw the Red Hot Chilli Peppers play "row, row, row your boat".... again, not strictly a cover (or particularly good) but gets marks for out and out obscurity!
The best ever cover version which wins by a mile is The Stranglers - Walk On By. Nothing can compete. The full length version which is 6 minutes long has the most fantastic musical section with Hugh Cornwell on Guitar and probably the greatest ever solo keyboard display by Dave Greenfield all with Jean Jacques Burnel's thumping bass in the background. The rest of the contenders mentioned are mere flotsome and jetsome.