Peter Curtis' solutions worked for me.

pcmanfm -> Edit -> Preferences -> Advanced Tab

I just had to change

x-terminal-emulator %s 
into
x-terminal-emulator -e %s


changing

x-terminal-emulator -e %s
into
lxterminal -e %s

also works... any advantage to one over the other?


***  NOTE: 
I had to use /bin/bash (NOT /bin/sh) to initiate the script 
/bin/sh just opened the terminal and closed it regardless if using 
x-terminal-emulator or lxterminal mentioned above. 

tested with

#!/bin/sh
echo 'see me'
read


#!/bin/bash
echo 'see me'
read

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https://bugs.launchpad.net/bugs/975152

Title:
  Execute in terminal not working

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