In xterm the colors are all funky, first I suspected ncurses, but running
mc through telnet from a 6.2 machine didn't help.
After some experimenting I found that removing
/usr/X11R6/lib/X11/app-defaults/XTerm cures this.
What also cures it is commenting enough lines, which lines don't matter as
long as there are enough lines commentend, can you spell buffer overrun?
This seems fixed in XFree-4.0-0.28 from the beta2/snapshot dir on gribble.