iTerm
While I'm talking about my iBook, I should mention that I have fallen in love with iTerm. It was a rocky road to satisfaction though, so don't give up too soon. The trouble I had was getting Terminus to look good (1.2 on the horizontal spacing), getting it to pay attention to the changes I made to the default colors, terminal, etc., terminal emulation issues (but not nearly as many as Terminal.app), and that annoying bounce when something is new behavior.
Get the CVS version. No bouncing, and I suspect better behavior with remembering settings. You might need to nuke your iTerm settings when upgrading to get things to work smoothly (they tell you how on their site). The rest is to be persistent and believe that it will do its best to disappoint you. With that attitude you should successfully configure it to your liking. Some of the more annoying problems with Terminal.app are gone in iTerm, but only when you choose rxvt as the TERM setting. Who knows, that might even work in Terminal.app. It also seems faster and seems to use less memory (a very noticeable thing on my 256MB iBook!).