Earlier quoted context omitted.
I use Terminal almost exclusively in full-screen mode, and iTerm allows me to do just that. And no, Terminal.app does not have full-screen mode that is useful. Lion-style fullscreen apps are absolutely useless to me, since you can't bind them to ctrl-[1-9] hotkeys to switch between spaces.
I might have a workaround for you! I use a launcher for OS X called 'Quicksilver'. It's free and absolutely changed the way I approach computing (at the speed of thought, not the speed I can aim and click icons on my screen) and one of the handiest features Quicksilver let's you configure is called 'triggers'. Triggers are system-wide shortcuts that run a quicksilver command. So I have a quicksilver trigger for EVERY…
Not sure if Quicksilver has this, but one nice feature is that if, say, Chrome is currently active, and I hit its key-combo (control-shift-c), Chrome is hidden (the equivalent of command-h). This is great if you're installing something in the background and want to see if it finished without reverting back to the dark ages of command-tab.
It's especially nice on a laptop, because I can expand all my windows to fill the screen while still having near-zero overhead when switching between apps.