Cannot set $TERM in screen -- it always defaults to xterm

[Leo Alekseyev]

On Ubuntu 9.10, GNU screen ignores any attempt to set the TERM variable --
either by setting term="xterm-256color" in .screenrc, or using :term command in
screen itself, or using a -T command line switch. Whatever I do, $TERM is stuck
at xterm. Somehow screen is able to display 256 colors under gnome-terminal, but
under xterm it defaults to 8.  I tried reinstalling from the repositories and
compiling from source, and I still see this behavior.  Can someone explain what
is going on and how to fix it?  TIA.