changed again..

1. as root put attached image (xterminal.png) in
/usr/share/icons/hicolor/48x48/apps
(you should see terminal.png in there)

2. edit:
usr/share/applications/hildon/osso-xterm.desktop
change icon to "xterminal"

3. in xterm, type
sudo gainroot [enter]
gtk-update-icon-cache -f /usr/share/icons/hicolor [enter]

4. reboot


im pretty sure step 3 isnt needed but this worked for me


u can use either of these, the one on the right is the Ubuntu xterm icon