hi, all. i'm thrilled to see that - in emacs 23.0.60, debian "emacs-snapshot" from a few days ago - i can use emacsclient to get a tty frame connected to a X-based emacs session! yay, yay, yay! i had to poke and prod a bit to get it to work, though, and am wondering whether this is a known problem.
i avoid that error by inhibiting the shell environment (and adding back the TERM setting):
env -i TERM=xterm emacsclient --tty
(spelunking a tiny bit through the operation, it looks like my elaborate shell environment, with numerous multi-line shell functions, may be thwarting server.el server-process-filter. it may be something else in the environment, though.)
looks like emacsclient is a bit too sensitive to environment settings.