I tried a dist-upgrade and that seems to have fixed things.    The terminal 
console window is working properly.   A hibernate issue also seems fixed 
(laptop would lock up when the lid went down etc.).   I also updated all 
packages.    This particular laptop is a Thinkpad T41 with an ATI GPU.   Here's 
the specs from running 'lspci:'
01:00.0 VGA compatible controller: ATI Technologies Inc Radeon RV250 [Mobility 
FireGL 9000] (rev 02)

Here's the current versions of packages that may be of interest:

2.6.32-24-generic

xserver-xorg-video-radeon
1:6.13.0-1ubuntu5

xserver-xorg
the X.Org X server
1:7.5+5ubuntu1

xorg
X.Org X Window System
1:7.5+5ubuntu1

If you need any more info, let me know.

-- 
Radeon with KMS : Window decoration in lxterminal is invisible
https://bugs.launchpad.net/bugs/567957
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