It's been a while since I used it, but off the top of my head:

- colors never worked right, you can certainly enable them but themes like solarized are impossible to get working.

- it took forever to open. as in, a terminal on my machine is just a keypress away and it took the terminal on my osx machine a couple seconds to open a window, and even longer to show me a prompt

- somehow they borked mouse input, so clicking the line you want to edit from within a vim session, for example, is a no-go.

- this is a lion problem but terminal interacts with it especially badly, there's no easy way to open a second terminal window. I usually have tons of the things open and it's impossible to manage them properly.