I own a 30 year old townhouse that has interior window sill which was framed as part of the wall and is leak damaged. Can this be repaired, and if so, what is the best route? Or is replacement the better option?
It sounds like your window sill is made of drywall. If this is the case, or even if it is made of wood, replacing the window sill is not a difficult job and should not require replacement of the window.
Windows are actually sold without the sill so replacing the damaged window sill will neither affect the operation of, nor require replacement of the window itself. If the window sill is made of drywall, cut out the damaged area and patch it with drywall compound or Spackle. Do this through several thin layers of Spackle until you have reached the original surface. If the sill is wood, remove the casing and then lift the window sill off and replacement it. Most importantly, make sure the leak that caused the window to rot has been repaired so that this does not happen again.