In gnome-terminal, the ALT modifier does not emit characters with the eighth bit raised as usual (e.g., in xterm), but rather prefixes the character with ESC. This is OK with the shell because bash is configured so to espect such sequences, but it DOES NOT WORK with all applications expecting the eighth bit raised. It should be AT LEAST an option for the user to have the standard xterm behaviour (eighth bit raised) or the ESC prefix. In any case, the second problem is the the TAB key *does not get the prefix!*. It is the only key to behave in such a way. So the standard binding for Meta-TAB (or \M-\C-\t), dynamic-complete-history, does not work (you have to manually press ESC and TAB). Note that I use CTRL-TAB in sawfish for window cycling, so the keypress actually gets to gnome-terminal. Even in the case you do not think it's a good idea to fix the first problem, you should definitely fix the second one...
Sounds reasonable to me, will forward upstream to gnome-terminal maintainer.
Upstream as http://bugzilla.gnome.org/show_bug.cgi?id=57455 Closing on RH level