UserAgent: Mozilla/5.0 (X11; CrOS x86_64 9460.73.1) AppleWebKit/537.36 (KHTML, like Gecko) Chrome/59.0.3071.134 Safari/537.36
Platform: 9460.73.1 (Official Build) stable-channel terra

Steps to reproduce the problem:
1. Install the Chrome OS developer shell
2. Open the shell
3. Open preferences via CTRL+SHIFT+P
4. Open a Javascript developer console and enter:
   > term_.prefs_.get('environment')
5. See that the default for TERM is xterm-256color
6. Go back to the shell and type "shell"
7. Check the TERM value
   > echo $TERM
8. Check the number of colors
   > tput colors

What is the expected behavior?
TERM should be set according to preferences (i.e. xterm-256color by default)

Number of colors should be 256 by default

What went wrong?
TERM is set to 'xterm', disabling 256-color mode

Because TERM=xterm, the number of colors is 8

Did this work before? No 

Chrome version: 59.0.3071.134  Channel: stable
OS Version: 9460.73.1
Flash Version: 

This seems to have been caused by  Issue 220405 
- code review: https://chromiumcodereview.appspot.com/12223118/patch/8001/9001
- current code: https://cs.chromium.org/chromium/src/chromeos/process_proxy/process_proxy.cc?l=219
> options.environ["TERM"] = "xterm";