The remote host is missing an update to xterm announced via advisory USN-703-1.
Details follow:
Paul Szabo discovered that the DECRQSS escape sequences were not handled correctly by xterm. Additionally, window title operations were also not safely handled. If a user were tricked into viewing a specially crafted series of characters while in xterm, a remote attacker could execute arbitrary commands with user privileges. (CVE-2006-7236, CVE-2008-2382)
Solution: The problem can be corrected by upgrading your system to the following package versions:
Ubuntu 6.06 LTS: xterm 208-3.1ubuntu3.1
Ubuntu 7.10: xterm 229-1ubuntu0.1
Ubuntu 8.04 LTS: xterm 229-1ubuntu1.1
Ubuntu 8.10: xterm 235-1ubuntu1.1
After a standard system upgrade you need to restart any running xterms to effect the necessary changes.