|Linux Backspace/Delete mini-HOWTO|
The fixes suggested here should solve to a large extent the problem of deleting text you wrote (however, they do not help in creating other text :)).
There is a small bug in the whole setting: if you're using the COLORTERM trick and you start xterm from gnome-terminal, the former will get TERM set to gnome. This inconvenience is, of course, mostly harmless, and does not occur if you simply started gnome-terminal with TERM suitably set.
Another nontrivial problem that essentially has no solution is the one concerning remote connections: if you connect to a host whose terminal database is incoherent with yours, you will have to set up things manually.
Finally, it should be noted that the fixes will not work for broken applications (for instance, applications ignoring the kbs key capability). There is little to do in this case, as fixing for one broken application will likely break all well-behaving ones.