Description of problem:

"Preferred Applications" can't handle some obvious terminal preferences.

To run from the menu:
  Preferences >> Prefered Applications >> Terminal
  Select "Standard XTerminal"

Version-Release number of selected component (if applicable):
control-center-2.6.1-3

How reproducible:

To run from the menu:
1.  Preferences >> Prefered Applications >> Terminal
2.  Select "Standard XTerminal"
3.  Apply

Now, running a terminal will run xtrem.

4. Repeat 1 and 2
3. Click "Custom Terminal" (Should now be: 'xterm', '-e')
5. Change command to: "xterm -rv +sb -vb"
6. Apply

Now, running a terminal will run Gnome Terminal! The field is clearly
labeled 'command', and yet anything other than a program name doesn't
work; any program invokation should be legal here.