The gnome terminal opens, but always in $HOME, and not the directory, where the action has been invoked.
I can't duplicate your problem here. On all my FC5 systems, the terminal opens in $HOME only when opened from a desktop right-click or on the user's home folder. If I right-click any other folder and choose "Open in Terminal," the resulting terminal is started with $PWD in that folder. Please reopen with some relevant debugging and/or the steps you followed if you can find someone else who can duplicate this behavior.
The problem only appears, if there is already a gnome-terminal open, otherwise "Open In Terminal" works as expected (for the first terminal). In "Preferred Applications" I select "GNOME Terminal" which has a config for "Command:" such that "gnome-terminal --working-directory=%f". If I change to "Custom" and remove "--working-directory=%f", nautilus-open-terminal works as expected. Maybe something other breaks, I don't know.
I was going to file the same bug, but then I saw Gérard Milmeister's comment. Removing the "--working-directory=%f" part of the action solves the problem. In fluxbox, where there is no prefered applications, when using nautilus as file manager, the open-in-terminal extension works always as expected.
REOPENED status has been deprecated. ASSIGNED with keyword of Reopened is preferred.
Current nautilus-open-terminal releases have not used the '--working-directory' hack for some time, since the product now uses the nautilus URI for opening folders. There is no clean way to override old user customizations, however. As you have discovered, users can always revert their personal settings and the extension behaves as expected.