Actor Paul Birchard recently told blog site Jump Cuts about his experience of working on the set of The Dark Knight and his thoughts on how Heath Ledger is portraying The Joker:

As regards to how Heath Ledger *seemed* as the Joker, he seemed like he WAS the Joker, and didn't need to let anyone know it - rather contained, but ready to explode at any moment in an unexpected fashion. Menacing, but more because he seemed like he was probably crazy, and maybe violent, rather than that he was TRYING to scare you. (and by the way, all he did during the scenes I was in was sit in his holding cell, reacting and listening...so, he's a very fine actor if I imbibed all this from just watching him sit there...) He didn't talk a lot between takes, but he also wasn't "Don't approach me!" in his manner - a real pro, in other words.

In short, he seemed just like the Joker SHOULD seem.