For some reason the default OS X terminal program, Terminal.app, sets TERM=xterm-color but doesn’t send the correct keycode that a colour xterm would send when you hit backspace. The solution is to set TERM=rxvt.

The instructions at the end of that link are a bit out of date; here’s how to do it on OS X 10.5.6:

• Open Terminal.

• Hit Cmd-, or select Terminal >> Preferences from the menu, to bring up the Preferences.

• Click Settings (the second icon from the left in the bar along the top).

• Click Advanced (rightmost tab).

• Select ‘rxvt’ after ‘Declare terminal as’.

• Uncheck ‘Delete sends Ctrl-H’.

… and you’re done. You might also want to click through to the Keyboard pane and select ‘Use option as meta key’, which is useful (although I wish I could use Command as the meta key).