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...