Ubuntu – Gnome-Terminal reports $TERM to be `xterm`

First, you have something contradictory in your question. You said, "it started to show user@hostname: ~/currentdir in its title, changing it whenever I cd to another directory", but the image attached said something else. I am almost sure that if you've selected "Replace initial title" setting in gnome-terminal's preferences and if you use this ~/.bashrc file as you said, your terminal should look like in the following image:

Second, you're totally wrong with: "vim, for example, sets current filename as a title". To do this, you must to heve a file named .vimrc in your home directory with the following code inside:

let &titlestring = $USER . "@" . hostname() . ": vim " . expand("%:t")
if &term == "screen"
  set t_ts=^[k
  set t_fs=^[\
endif
if &term == "screen" || &term == "xterm"
  set title
endif

And one more thing: I don't understand yet exactly for what do you using that if from the 11th line until 40th line in your .bashrc file, but setting up TERM="gnome-256color" at the line 33 may be a problem in this case. So, I suggest you to comment that line, or to remove all the code between lines 11 and 40.

After all of this done, when you will use vim, your terminal should look like:

[ for gnome-terminal ]

use stty tool, good for visualzing what bash keyboard shortcuts are binded.

see your current bash keyboard shortcuts (my system output):

stty -a

my output:

speed 38400 baud; rows 41; columns 76; line = 0;
intr = ^C; quit = ^\; erase = ^?; kill = ^U; eof = ^D; eol = <undef>;
eol2 = <undef>; swtch = <undef>; start = ^Q; stop = ^S; susp = ^Z;
rprnt = ^R; werase = ^W; lnext = ^V; discard = ^O; min = 1; time = 0;
-parenb -parodd -cmspar cs8 -hupcl -cstopb cread -clocal -crtscts
-ignbrk -brkint -ignpar -parmrk -inpck -istrip -inlcr -igncr icrnl ixon
-ixoff -iuclc -ixany -imaxbel iutf8
opost -olcuc -ocrnl onlcr -onocr -onlret -ofill -ofdel nl0 cr0 tab0 bs0 vt0
ff0
isig icanon iexten echo echoe echok -echonl -noflsh -xcase -tostop -echoprt
echoctl echoke -flusho -extproc

werase is responsbile for deleting an entire word.

running this will set ctrl + backspace to erase a word when pressed.

stty werase \^H

!note: this will set this option only to your current terminal/bash session. in order to apply this permanently you need to add previous command to .bashrc file at the end of it.

settings from .bashrc will be loaded every time you open gnome-terminal.

after this you are ready to go. enjoy.