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Note that my own terminal MacTerm (http://www.macterm.net/) also supports most of the iTerm2 features from this post. Though I feel my Full Screen support is nicer: I provide options such as a scroll bar when full-screen, and I do not use Lion's widget so the switch is instantaneous and has proper multi-display support (i.e. you can have a full-screen terminal on two displays if you want to).

I don't have split-panes, though they're on my list. There are a handful of other features I don't have, but also vice-versa. In the end I won't say either app is better, but I definitely think there isn't one terminal everyone will like.

i'll check it out.

split-panes are a great feature. glad to see they're on the roadmap.

Split panes are cool, but the killer feature that I would jump ship for is full screen mode for dual monitors on Lion.
Out of curiosity, why do you need a terminal that spans two monitors?
One full-screen terminal per monitor. When you enter full-screen mode with iTerm, the second monitor shows the linen background.
This is a problem with every single application that uses Lion's full screen widget which makes it seem like a huge oversight. Did the people that programmed that feature not use multiple monitors?!
That behavior is enforced by Lion itself, and that is one reason why I don't support Lion's mechanism (another being that the transition animation is way too slow). I've reported these problems as bugs to Apple long ago, and I have seen no action. I decided it was more important for Full Screen to be right than it was to adhere to some fancy but broken standard approach.
Turn off Lion fullscreen mode in prefs->general.
Plus, iTerm 2 segfaults! All the time and for no clear reason! And the performance is far, far worse than Terminal.app!
Sorry to hear that. Not that it diminishes your experience at all, but I've been using iTerm2 daily for a couple of years without any trouble like this.

I had to try to diagnose a glitchy Mac once where some funky fonts installed by MS Office ended up being the cause for crashing various programs. Any chance that could be what's going on for you?

Are you iTerm2 and not iTerm1? For me, iTerm1 had horrible performance and crashing issues, but iTerm2 has been super speedy and rock solid, even through all the alphas and betas.
I use TotalTerminal (http://totalterminal.binaryage.com/) and have it set up to show up on the bottom 1/3 of my screen with a transparent background when I hit the "Eject" key that I never use for anything else. As far as I can tell, I also have colors and split panes, though I rarely use them.
I used to use iTerm2 (or maybe it was still iTerm then), but eventually Terminal was just good enough. I think people who have used iTerm2 for a while might forget that Terminal improves with every new version of OS X; it's not just some stagnant app that Apple ignores.

For example, Terminal on Lion includes 256 color mode and split panes. And it actually has cool features like restoring the scrollback buffers in each tab you had open if you quit or restart.

So yeah, I consider Terminal good enough these days.

> And it actually has cool features like restoring the scrollback buffers in each tab you had open if you quit or restart.

Yeah that is an amazing feature and almost has me switching back. I can only hope they add that to iTerm2--it seems such an obvious good thing.

First off, both iTerm and TotalTerminal were very useful and fairly well done.

On Mac OSX Lion though, Terminal.app supports 256 colors and split pane (although only vertical stacks). I don't know what use growl gives me, but having to update it was annoying.

What I do miss from TT and iTerm is the visor mode bound to a shortcut key. Both had downsides though: TT would mess up copy and paste, iTerm would just crash sometimes, you couldn't have the visor down while typing something on another screen. All in all I decided it wasn't worth the trouble to reinstall either when I switched to Lion.

on growl you can turn updates off. they are really annoying: they continue to pop up even if you close out the notification, that gets even more annoying.
iTerm2 is a fantastic Application. I did not experience any slowdowns, segfaults or anything, and i am a heavy user.

I refuse to update to Lion, so i cant judge the new Terminal from Apple. But on Snow leopard, Terminal is inferior to iTerm2.

I don't get it. OSX users didn't have screen? Or the ability to full screen a window?
I have been using iTerm 2 full time for many months. Super stable. The full screen mode with panes is wonderful. George Nachman has done a wonderful job and is very responsive with any problems.
Yes, I've been using it for over a year now. And it has been quite stable.

Its killer feature for me is command+N to go to that tab.

I've never understood why Apple has not implemented commnad+N in Terminal.app