MADALU  I tried iTerm for a day or two. In theory the features were very nice--tabbed browsing, full-screen mode, etc.

But in practice, iTerm was intensely frustrating. Apart from the annoying transparency issues mentioned in a previous comment here, the biggest problem I encountered was iTerm's speed. (I ran it on an 800MHz G4 iMac.)

I don't quite understand how an all text program can be less responsive than, say, an image-heavy app such as Preview or Safari. The keys felt very slow, and there was a noticeable delay between typing and screen response. Turning off anti-aliasing helped a bit, but not much. Switching tabs was also surprisingly slow--slower than switching tabs in my favorite web browser Camino.

Likewise, when running the email-client Mutt, there was a noticeable delay when redrawing the screen for each new message. (The messages are stored locally, so the delay is not due to remote access.) In a very unscientific test, I tried iTerm side-by-side with Terminal.app using Mutt and the latter won hands down in redrawing the screen.

If you're looking for speed in a terminal app, go with xterm (or uxterm for UTF-8 people). Lightning fast! No delays at all in redrawing the screen in Mutt.

You'll need to install Apple's X11 package. When you first open X11, you get a really crummy looking terminal. But this can easily be changed by modifying the xterm line in the .xinitrc to something like the following:

uxterm -fg black -bg LemonChiffon -fa 'Monaco' -fs 12 -geometry 80x40 -tn xterm-color &

You get a yellowish background in this instance with an anti-aliased Monaco font. (WARNING: Some of the antialiased fonts look horrendous in xterm.)

For different colors see the following guide:

http://mkaz.com/ref/xterm_colors.html  
(Version 0.9.5)