I've been using this replacement for Terminal.app while it's been in beta, and it's fantastic. It natively supports splitting, windowing, and tabs, and it has great keyboard shortcuts for navigation between all of your windows. It also has fullscreen mode (and top-of-screen mode) if you like to dedicate a Space to it. There's a Solarized theme for it if you're into that sort of thing. It supports Growl if you can't stand not being bugged about unnecessary information (or you can turn it off if you're the productive type).
This is the very first thing I install on a new Mac for development. I highly recommend it.
Terminal.app has tabs, at least as of Snow Leopard. Also does split panes (but they are the same session). I use Terminal quite a lot but have not found it lacking enough to consider replacing it.
That pretty much sums it up. I've set a global hotkey on ⌘+P to show iTerm on fullscreen (with all my tabs and custom configurations) and I love it =). Much kudos to the developers!
This is the very first thing I install on a new Mac for development. I highly recommend it.