Maemo uses Busybox for many of the shell commands. That's why there are missing features compared to the full GNU tools. It is to save space (a lot of it, actually) just as you thought. You can view documentation about Busybox commands on its website, but bear in mind that Maemo Diablo uses Busybox v1.6.1 (released May 2008).

I don't know about mc compatibility with Maemo xterm. I've never tried it.