I'm interested in your reasoning for why Terminal.app is embarrassing. It seems significantly better than, say, rxvt to me.
I think Terminal.app used to be pretty darn bad (leopard/snow-leopard era).
I find the current version (in mountain lion) to be quite reasonable though.
Agreed, I spend a significantly large amount of time with 5-8 terminal tabs open and I've never been bugged by it. It's just very feature bare compared to iTerm.
How is Terminal.app embarrassing? In most of the ways that a traditional terminal is important, it acts exactly as expected, and still has convenient "new" terminal things like tabs and profiles.
I think the last time a lot of people used it before jumping ship for iTerm was about 10.4, where it was pretty horrible.