How to get more colors in OS X's Terminal.app?

[Stefan Arentz]

I use emacs on OS X 10.4 with Terminal.app or iTerm.app. When I change
the color for a specific face I can only use a limited set of colors:

  Possible completions are:
  black                              blue
  cyan                               green
  magenta                            red
  white                              yellow

But many more colors seem to work in other programs. Vim for example
shows many more colors when highlighting source code and I've also
configure GNU ls to show colors like grey, orange and purple.

How do I tell emacs that it can use all these colors too?

 S.