The first issue are the ANSI colors -- blue and red are to dark for me, and white is too bright. The best way to fix it is to install the great plug-in called TerminalColors, made by Mike Solomon. It really works and gives you ability to tweak ANSI colors with regular color panel.
The second issue is a very short list of supported encodings (charsets), and this is a big problem for people like me. Recently I found that my beloved screen program (found in /usr/bin/screen) also supports a lot of encodings including UTF-8, so I decided to crossbreed it with Terminal. If you simply call screen from your Terminal.app like this:
screen -U
it will launch in UTF-8 mode. UTF-8 is default encoding for Terminal.app, so they fit perfectly to each other. Then press Control-A, followed by a colon, then type encoding KOI8-R and hit Return. From this moment on, screen will translate all input and output between UTF-8 and KOI8-R automatically. For a full list of encodings, open the man page of screen and search for keyword "KOI8" -- this will jump you right into the list of encodings. Also you may setup default encoding in ~/.screenrc with the option defencoding.
Actually I went farther and set /usr/bin/screen -l -U -xRR as my default shell in Terminal. Now Terminal works as a perfect viewer for screen. I can have many Terminal windows opened simultaneously pointing to different screen displays.

