Edit your .bashrc as follows. Before the "case $TERM" statement that sets color_prompt, add the following:
# GNOME Terminal is broken re: $TERM settings
if [ "$COLORTERM" = "gnome-terminal" -a "$TERM" = "xterm" ]; then
TERM="xterm-256color"
fi
Now edit that "case $TERM" statement to look like this:
# set a fancy prompt (non-color, unless we know we "want" color)
case "$TERM" in
xterm-color|xterm-256color) color_prompt=yes;;
*-256color) color_prompt=yes;;
esac
Finally, look for the part of your .bashrc that sets the PS1 variable and make it look something like this:
if [ "$color_prompt" = yes ]; then
PS1='${debian_chroot:+($debian_chroot)}\[\033[01;32m\]\u@\h\[\033[00m\]:\[\033[01;34m\]\w\[\033[00m\]\[\033[01;31m\]$(__git_ps1)\[\033[00m\]\$ '
else
PS1='${debian_chroot:+($debian_chroot)}\u@\h:\w$(__git_ps1)\$ '
fi
unset color_prompt force_color_prompt