Thanks Jason.

That was my problem too, prefered application for terminal was set to 'Custom', 
blank in command line and '-x' in options.
Setting preferred terminal to gnome-terminal fixes the problem.

However I have no idea how this setting was set to this erroneous value.
I also think nautilus should detect the problem and throw an error
message and not hang...

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nautilus-open-terminal freezes nautilus
https://bugs.launchpad.net/bugs/137027
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