the virtual terminals (/dev/pts) are not automatically mounted under the development kernel (2.5.68), meaning the *terms (xterm,Eterm) no longer work. To finx this, put the following line in /etc/fstab: devpts /dev/pts devpts defaults 0 0 and do 'mount devpts' to get your pts's back.
maybe just the missing automount option in kernel config ?
Checked that. It's a new 2.5.68 'feature', comfirmed on this thread: http://forums.gentoo.org/viewtopic.php?t=48830
Yes, I know. Already fixed it for 2.5.67 when the patches was posted ... will be in next baselayout.