There are many other hints about terminal-problems with all kinds of X11 and window managers, especially concerning cut and paste. I hate xterm, don't mind Terminal.app, but like iTerm.app the most. So I want Apple's X11 to launch iTerm instead of xterm, to have a nicer user interface and a functional cut and paste. My solution was to move the xterm binary from /usr/X11R6/bin/xterm to /usr/X11R6/bin/xterm_old, and place iTerm there instead. I had some difficulties with direct aliases or links, so I did the following. Place a file called xterm into /usr/X11R6/bin/ (after moving the original) and edit it. The only line is:
open /path/to/iTerm/iTerm.app
Now make it executable (chmod 755 xterm), and live happy ever after.
Mac OS X Hints
http://hints.macworld.com/article.php?story=2004082505230779