Is the theory-theory the best account we have of mental-state terms?

Thoery-theory's biggest problem is when one contemplates actions, which is a much more relevant endeavour than hoping to couch epistemology in terms of theory. For the best accounts of mental state terms I would advise looking at action theories. The reason for this being that action theories tackle the problem of how mental states such as beliefs, desires, etc. CAUSE action, this has led to vast work on what exactly mental states and their terms mean. i.e. what is a belief, desire etc what do the terms mean. It seems to me theory theory is more useful in cognitive studies however as the previous answer suggests it does have flaws. For some very relevant and contemporary work in the field look at Donald Davidson and Jaegwon Kim, Mark Rowlands andand Daniel Dennet.

Hope this was what you were looking for rather than an exposition of theory theory or other congnitive theories.

Admittedly not an expert on this one, but it doesn't look like you are getting any other answers so I'll throw my hat in the ring.

The Theory theory is cool beans. That's just the way it is. I don't know how anyone interested in cognitive development, child psychology, and philosophy of mind could deny that. However, the sheer coolness of the theory gives us reason to be wary. Simply because a theory strikes us as neat is not in its favor, though it does often cause some of our defenses to lie down.

From what I have read, the biggest problem with the theory theory is that it could possibly be superfluous. It seems to fit very well with the experiential data, and with our intuitions. There are even plausible evolutionary tales for its development. However, the point remains that it may be possible to explain the data in a simpler way, causing the theory theory to become sliced off by occam's razor. According to the theory theory, children form their notions of EVERYTHING according to theories, including object permanence and motion. Though it is clear that other apes (and many other animals) have working systems to handle such interactions without theories.

I'm not clear whether the theory theory is compatible with functionalism or not. On the one hand it seems as though it could be a branch of functionalism, but if there is something that makes them exclusive, I would say that functionalism provides a strong competition for accounting for mental state terms. If you are unfamiliar with it, read some Jerry Fodor about his "mentalese", language of thought. I believe that deals with the same sort of issues you are interested in.

Also connectionist networks, as developed by Paul and Patricia Churchland, have some interesting possibilities (though they aren't doing as well as originally hoped), to explain mental phenomena. But maybe you should check that out too.

Hope I've touched on your question at least a bit!