You could try removing the files ~/.bash_profile, ~/.profile, ~/.bashrc, and ~/Library/Preferences/com.apple.Terminal.plist, if they exist, but most likely this is actually the problem as described by the error: libiconv got replaced with an older version. In this case, there are two methods to replace it: download the source code, build and install by ssh-ing into the computer, or reinstall the library from your installer DVD. If you choose to install from the DVD, I would suggest downloading Pacifist so that you can install just libiconv instead of the whole system (of course, there might be other files that need replacing too).
