I used to run everything full-screen. Then I realized how much time and CPU I was wasting making things redraw twice every time I wanted to get at something in the statusbar, and stopped. I go fullscreen if I'm going to be spending a while where the extra space is useful -- note-taking, PDF reading, and heavy browsing. For other things, or when I'm only spending a couple minutes in one of those, I don't bother.
I'm just a little baffled by the repeating assumptions that cursor keys are required for xterm. That's almost the last place they're needed, because a lot of terminals over the years haven't had them, so many apps work fine without them. It's true, I've only ever had one small-keyboarded terminal, and I didn't ever do much with it, but I've got a pretty good idea where to start.