You guys might already solved it by yourselves but if not,
this might help...
"Neal D. Becker" <nbecker(a)hns.com> writes:
 Starting up term mode I get:
 (1) (error/warning) Error in process filter: (error /home/nbecke/ is not a 
 directory)
 No kidding!  My home is /home/nbecker! 
 This is 21.4.11 with all current packages.
 
Joel Stanley <jstanley(a)cs.uiuc.edu> writes:
 I recently built 21.5.13 in order to attempt to solve problems I was
 having with tramp-mode hanging in 21.4.x.  The good news is that, for
 some reason, tramp-mode doesn't hang in 21.5.13 (see
 
http://mail.gnu.org/archive/html/tramp-devel/2003-05/msg00006.html) like
 it does in 21.4.x.
 The bad news is that, M-x term RET /bin/bash RET gives me a terminal
 that seems pretty broken. In particular, newlines don't seem to be being
 read from the inferior process correctly, or something along those lines
 ("ls" from the bash prompt yields a series of incorrectly broken lines,
 similar to what you'd see if your stty settings were wrong). 
I think both of you use Mule build.  If so, try "C-x RET c
binary M-x term".  It is the problem of EOL auto detection.
By default, eterm does not meddle with coding-system stuff
which means it uses auto detection for output from a shell.
When auto detector sees CRLF sequence, it decides that it is
part of DOS line endings.  As a result, CR is eaten by
coding-system conversion so it never reaches eterm.  Eterm
should add something like 
(let ((coding-system-for-read (or coding-system-for-read 'undecided-unix)))
  create process...)
so that CR will reach terminal emulator correctly.
If someone cares enough about eterm, writing a patch like
above would be nice.
-- 
Yoshiki Hayashi