XTerm is a wonderful terminal. It is, in my experience, the only terminal that combines a proper VT220 engine with a UI that's actually nice.
It's such a shame it comes with such horrible default settings. Tiny text, small scrollback, and black-on-white? Clearly, more sensible defaults need to be applied.
First off; let's deal with that scrollback. 1000 lines should do it; and while we're at it, let's get a nice scrollbar.
*VT100*saveLines: 1000 *VT100*scrollBar: true
Now to fix the colours to a more sensible set. I think the red/blue/etc... are actually good, but the default needs to be white-on-black. I actually use very-nearly-white, so that bold white is just a little brighter, and stands out more.
*VT100*background: black *VT100*foreground: gray90
For more details about this one, see XTerm and 8-bit characters.
*VT100*eightBitControl: false *VT100*eightBitInput: false *VT100*eightBitOutput: true *VT100*utf8: 1
It's a shame that XTerm now does XFT font rendering, so you can get wonderful smooth anti-aliased fonts, yet are stuck by the defaults of using the -misc-fixed font. These defaults select a nice anti-aliased font.
*VT100*faceName: DejaVu Sans Mono *VT100*faceSize: 12
Finally, allow XTerm to use underlining, since it might as well.
*VT100*underLine: true