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Somehow my colors in Terminal.app are completely borked. If I load up Vim with syntax on, there are no colors, but line numbers are underlined (and so are some other parts). It looks really really ugly. I can confirm that it's Terminal.app and not vim, because if I load up xterm it looks fine.

I have tried to restore defaults in preferences but it doesn't fix the problem.

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Maybe you could try trashing com.apple.Terminal.plist from ~/Library/Preferences. – slhck Jan 14 '12 at 16:11
    
Thanks for the tip, didn't work unfortunately. – Matthew Jan 14 '12 at 16:15
    
Make sure your $TERM environmental variable is correct. – Heptite Jan 14 '12 at 16:53
    
Thanks @Heptite. When I type $TERM it says: bash: xterm-256color: command not found – Matthew Jan 14 '12 at 17:46
    
Thank you so much @Heptite, changing the terminal to xterm-color in Preferences fixed my problem. – Matthew Jan 14 '12 at 17:48

Make sure your $TERM environmental variable is correct. You can check it by doing:

echo $TERM
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