Linux – Enable 256 Color in Console

Caleb is right in his comment. xterm is fairly old and you should consider switching to urxvt -- at least the 256 and utf-8 enabled version, refer to your package manager to install the right one.

I have an identical set up to yours -- awesome WM, vim, urxvt, tmux/screen -- and they all work well with 256 colours and utf-8. I have set TERM to xterm-256color in case you need to set this manually.

Hum... After your edit, can you check if the vim colour theme is properly defined for terminals?

GitHub Gist: How to change cursor shape, color, and blinkrate of Linux Console

I define the following cursor formatting settings in my .bashrc file (or /etc/bashrc):

##############
# pretty prompt and font colors
##############

# alter the default colors to make them a bit prettier
echo -en "\e]P0000000" #black
echo -en "\e]P1D75F5F" #darkred
echo -en "\e]P287AF5F" #darkgreen
echo -en "\e]P3D7AF87" #brown
echo -en "\e]P48787AF" #darkblue
echo -en "\e]P5BD53A5" #darkmagenta
echo -en "\e]P65FAFAF" #darkcyan
echo -en "\e]P7E5E5E5" #lightgrey
echo -en "\e]P82B2B2B" #darkgrey
echo -en "\e]P9E33636" #red
echo -en "\e]PA98E34D" #green
echo -en "\e]PBFFD75F" #yellow
echo -en "\e]PC7373C9" #blue
echo -en "\e]PDD633B2" #magenta
echo -en "\e]PE44C9C9" #cyan
echo -en "\e]PFFFFFFF" #white
clear #for background artifacting

# set the default text color. this only works in tty (eg $TERM == "linux"), not pts (eg $TERM == "xterm")
setterm -background black -foreground green -store

# http://linuxgazette.net/137/anonymous.html
cursor_style_default=0 # hardware cursor (blinking)
cursor_style_invisible=1 # hardware cursor (blinking)
cursor_style_underscore=2 # hardware cursor (blinking)
cursor_style_lower_third=3 # hardware cursor (blinking)
cursor_style_lower_half=4 # hardware cursor (blinking)
cursor_style_two_thirds=5 # hardware cursor (blinking)
cursor_style_full_block_blinking=6 # hardware cursor (blinking)
cursor_style_full_block=16 # software cursor (non-blinking)

cursor_background_black=0 # same color 0-15 and 128-infinity
cursor_background_blue=16 # same color 16-31
cursor_background_green=32 # same color 32-47
cursor_background_cyan=48 # same color 48-63
cursor_background_red=64 # same color 64-79
cursor_background_magenta=80 # same color 80-95
cursor_background_yellow=96 # same color 96-111
cursor_background_white=112 # same color 112-127

cursor_foreground_default=0 # same color as the other terminal text
cursor_foreground_cyan=1
cursor_foreground_black=2
cursor_foreground_grey=3
cursor_foreground_lightyellow=4
cursor_foreground_white=5
cursor_foreground_lightred=6
cursor_foreground_magenta=7
cursor_foreground_green=8
cursor_foreground_darkgreen=9
cursor_foreground_darkblue=10
cursor_foreground_purple=11
cursor_foreground_yellow=12
cursor_foreground_white=13
cursor_foreground_red=14
cursor_foreground_pink=15

cursor_styles="\e[?${cursor_style_full_block};${cursor_foreground_black};${cursor_background_green};c" # only seems to work in tty

# http://www.bashguru.com/2010/01/shell-colors-colorizing-shell-scripts.html
prompt_foreground_black=30
prompt_foreground_red=31
prompt_foreground_green=32
prompt_foreground_yellow=33
prompt_foreground_blue=34
prompt_foreground_magenta=35
prompt_foreground_cyan=36
prompt_foreground_white=37

prompt_background_black=40
prompt_background_red=41
prompt_background_green=42
prompt_background_yellow=43
prompt_background_blue=44
prompt_background_magenta=45
prompt_background_cyan=46
prompt_background_white=47

prompt_chars_normal=0
prompt_chars_bold=1
prompt_chars_underlined=4 # doesn't seem to work in tty
prompt_chars_blinking=5 # doesn't seem to work in tty
prompt_chars_reverse=7

prompt_reset=0

#start_prompt_coloring="\e[${prompt_chars_bold};${prompt_foreground_black};${prompt_background_green}m"
start_prompt_styles="\e[${prompt_chars_bold}m" # just use default background and foreground colors
end_prompt_styles="\e[${prompt_reset}m"

PS1="${start_prompt_styles}[\u@\h \W] \$${end_prompt_styles}${cursor_styles} "

##############
# end pretty prompt and font colors
##############