On Ubuntu Gutsy, the embedded terminal plugin for gedit didn’t seem to work for me. It may not work for you, either. If it doesn’t, you can fix it with the following steps:

1. At the terminal, type: sudo gedit /usr/lib/gedit-2/plugins/terminal.py

2. Find the line that says:

   self._vte.fork_command()
    

   It should be around line 95.

3. Replace the line with:

   shell = os.getenv("SHELL")
   self._vte.fork_command(shell, argv = [shell], directory = os.getcwd())
    

4. Save and quit. When you next start up gedit, the embedded terminal should work.