I also have this problem running xubuntu under parallels on Mac OSX.
Everything was fine running Gutsy, but after upgrading to Hardy, the
terminal is now useless.  It is so bad that I can no longer use the
terminal.  Is there a way to revert back to Gutsy until this issue is
solved?

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xfce4-terminal window borders / decorations / widgets being incorrectly drawn 
(xubuntu 8.04)
https://bugs.launchpad.net/bugs/194769
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