From: "James K. Lowden" <jklowden@schemamania.org>

  The Powerbook has a key in the upper left corner labelled "delete".  I
  guess Apple didn't bite from the same apple IBM did.  OS X seems to map it
  to ^H:

  $ stty -a | sed -n '/^cc/,$p'
  cchars: discard = ^O; dsusp = ^Y; eof = ^D; eol = <undef>;
          eol2 = <undef>; erase = ^H; intr = ^C; kill = ^U; lnext = ^V;
          min = 1; quit = ^\; reprint = ^R; start = ^Q; status = <undef>;
          stop = ^S; susp = ^Z; time = 0; werase = ^W;

So this is the usual "key where delete ought to be sends ^H, use ^H as
erase".  Amusingly, when there used to be a BS key on terminals, it was
sometimes in the upper left, or someplace in the upper row to the right
of the numbers.  It was not intended to be used often.

You should use ssh; I think it will propagate erase settings.  Plus it's
good for you, builds character, fights tooth decay, etc.

IMHO, the right thing is to adjust the keymap in the window system on
the Mac, or in the terminal emulator, so that the key where delete ought
to be sends ASCII DEL, and to then set erase to ^?.  xterm has settings
for this, which I pointed to earlier.  You need two: make backarrow key
be DEL, and don't mess with pty's notion of erase.   By default xterm
has backarrow be ^H and sets erase to ^H, which is...

The second choice approach is to propagate the erase=^H notion around
and hope everything deals.  If you don't use emacs this might be ok.  If
you do it will probably annoy you.