Just managed to screw up my terminal by going into the ‘Window settings’ dialogue box, and hitting ‘Use settings as default’ – while I was telnetted into something.
For some reason, the telnet session was taken as a default setting too. So every time I started terminal it tried to telnet immediately to the remote host (which wasn’t there).
The only way I could get a command-line session was either to do a CTRL-Z to put the telnet session into the background. The alternative was to switch on the remote host, open terminal, telnet to the remote host and then telnet back!
Fortunately, I found this very useful page and the instructions there fixed it: