Correct, I just checked with my freshly installed Xubuntu 10.10 at work and 
Xfce4-terminal shows xterm, TTY says linux. But on my PC at home, both show 
Linux and Xfce4-terminal has problems. It does have xterm set as TERM variable. 
This variable is not accepted. I changed it to linuz, env still shows linux.
My laptop has the same problem and it too was upgraded from 10.04 to 10.10 and 
fully updated. I can of course add a work-around as described above that 
exports TERM in my .bashrc, but that doesn't fix the actual bug. I really 
wonder why the variable isn't set by xfce4-terminal.

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Embedded Terminal Emulator isn't giving a TERM variable
https://bugs.launchpad.net/bugs/621927
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