I would like to perfom such feats as cycling through previous commands, editing commands in place, etc. My expectation would be a readline-like interface, but this appears to not be the default.
If you want readline-like behavior you can of course use a readline wrapper. This works on all operating systems. On Ubuntu Linux (and other distributions I'm sure too) it can be installed easily through the package management. On Max OSX this can be installed using for instance MacPorts and I'm sure, there is an easy option on Windows too. Anyway, on all systems you can compile it yourselft. The usage is then
on Linux or
on Mac OSX. Try it and be surprised ;-)
If you're on Windows: which command line interface are you talking about?
The "math.exe" program is a console mode (i.e. "DOS prompt") interface to the Mathematica kernel. If you use that, you have access to the standard Windows console command-line editing; it is automatically provided by the OS to all console mode programs. You can use the arrow keys to move around in previous commands, and you can edit, insert, and delete, copy, cut and paste using the traditional DOS-style editing and function keys.
The "MathKernel.exe" program -- which is what appears as "Wolfram Mathematica 8 Kernel" in your Start Menu -- is a very simple GUI windowed interface without any line editing or other special features.
I usually use the Mathematica kernel by running "math.exe" inside a console, which I have set to be as tall as the screen and with a very large scrollback buffer (set using the console's "Properties" menu).