Jeff L. will have some choice picks I'm sure.
Everyone here has good taste and pretty much beat me to it, haha.
But reiterating, off the top of my head:
Wonderboy in Monster Land
Wonderboy III: The Dragon's Trap (arguably the best game for the system)
Spellcaster (it's worth it if you get into it)
Phantasy Star
Ninja Gaiden (PAL)
Master of Darkness (PAL)
Rampage (best conversion of it, bar none)
Golvellius
R-Type
Shooting Gallery (trust me)
-I'm of the school of thought that Psycho Fox actually sucks. Never liked it
-Get S-Video, it makes a huge difference on the SMS
-FM is cool to have but I wouldn't even consider it a must. A lot of the PSG soundtracks are honestly better
-You can plug a Genesis controller into the SMS. Recommend doing this because the SMS pad is crap
-If you have a U.S. SMS you can buy a converter that allows you to insert JP Mark III carts into the back expansion port. Search SMSPower.org forums for more info.
enjoy!