The Mac OS X Terminal.app is a very good terminal application and I have used it from the beginning and never had any problems with it. From time to time I had a look at the existing terminal alternatives but they were never really convincing. But after discovering iTerm2 it took me only 30 minutes from testing to finally replacing the Terminal.app icon in my dock!
The most important feature for me is the handling of the double-click selection. The Terminal.app is only selecting text based on word boundaries. So double-clicking in the middle of a file path in the Terminal.app gives you this:
Doing the same in iTerm2 gives you a much better result:
If you activate "Copy to clipboard on selection" in the preferences a simple double click on the file path followed by cmd-v will paste the complete path to your command line.
Also very helpful is the autocomplete feature. With this, you can autocomplete everything from the current terminal text buffer. You don't have to use the mouse anymore to get some text to your command line:
There are a lot more features which are also very useful like split panes, a good full-screen mode, and a good search function. The current version is stable and is performing really fast. So give it a try!