Micro's internal terminal (> term) shows white-on-blackcoloring as "grey-on-grey", causing the normal text to be invisible. This makes typing and reading text quite difficult.
A workaround would be to use tput setaf [color], but that doesn't work with colored PS1 prompt. Attached picture illustrates the situation. Above is the GNOME Terminal and below is Micro's internal terminal. (Of course, Micro is being run in a GNOME terminal, too)

Version: 2.0.7
Commit hash: 5044ccf6
Compiled on September 06, 2020
OS: Ubuntu 18.04.5 LTS, 64-bit
DE: GNOME 3.28.2
Terminal: GNOME terminal emulator, VTE version 0.52.2 +GNUTLS -PCRE2
Let me know if you need more information.
I am using Konsole and experiencing the same. I have a colored prompt (by changing the PS1 variable) that uses ANSI escapes with 21-bit color escapes, and some colors (for example green) are displayed properly, but some aren't (yellow or the default color). It seems to be random and not affected by my colorscheme in micro. Also, 8-bit ANSI color escapes seem to not be broken.
I made made a script to see what works and what doesn't, and here are the screenshots. This is how it displays for me on micro 2.0.7 (5044ccf6, 06 Septemder 2020) (and the 13th 2.0.8 nightly build) in Konsole 19.12.3 on Ubuntu 20.04 with Plasma 5.18.5.
What works are color escapes other than truecolor, and the default color is messed up. I don't know about other ansi terminal ecapes.
BTW, @zyedidia, is the internal terminal done using some library like tcell or is micro emulating it by itself?
Yes sorry about this, I believe this is fixed in the nightly version.
The internal terminal uses the library https://github.com/zyedidia/terminal (which is a fork of james4k/terminal) for emulating, and tcell for displaying the results. With the update to tcell v2 in 2.0.7 there was a change to how default colors are handled which appears to have caused this issue.
Thanks @MasFlam and @zyedidia for your efforts! I can confirm that the issue is fixed in the latest (as of this comment) nightly build:
Version: 2.0.8-dev.15
Commit hash: 530041ac
Compiled on October 03, 2020
I just checked, and yes, the grey-on-grey colors are fixed, but truecolor escapes are still (at least for me) not displayed correctly, even though I'm on a capable terminal. Should I open a new issue?
Were truecolor escapes previously supported in the builtin terminal emulator?
Frankly, I don't know - haven't used micro seriously before 2.0.7 where the terminal was grey-on-grey so haven't really ever checked it
I don't think the internal terminal emulator has supported truecolor or ever will. It is a pretty basic terminal emulator, and it's not meant to support a ton of features. It's mainly for when you want to quickly run a terminal command from in the editor and view the output. You may want to look into tmux if you want more advanced terminal multiplexing.
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Yes sorry about this, I believe this is fixed in the nightly version.
The internal terminal uses the library https://github.com/zyedidia/terminal (which is a fork of james4k/terminal) for emulating, and tcell for displaying the results. With the update to tcell v2 in 2.0.7 there was a change to how default colors are handled which appears to have caused this issue.