echo -e "\033[01;38;5;196mred text\033[0m" should show a bold red text (xterm does it correctly), but iTerm shows a bold blinking text. The attached patch should fix it (I didn't test it because I can't figure out how to compile iTerm.
The patch will fix the above command, but I'm not sure what to do in edge cases, like: \033[01;38;5m, the patch will ignore the incomplete 256 color commands and show a blinking text. Maybe it would be better to remove the 'i+=2' and put i += MIN(2, token.u.csi.count - i - 1) outside of the if.
Works for me with the latest svn. Could you please try with this build:
http://delx.net.au/files/iTerm.app.zip
http://delx.net.au/files/iTerm.app.zip doesn't fix the problem for me.