Obviously, nobody wants to use Apple's Terminal in a world where there is iTerm2.
It's equally obvious that Barebones bbedit is awesome.
If you want the context menu selection, Go Here in Terminal to open in iTerm2, paste this into the command line:
defaults write com.barebones.bbedit TerminalBundleID "com.googlecode.iterm2"
(Make sure the quotes weren't made curly by your web browser. You can use bbedit->Text->Straighten Quotes to make sure.)