You're welcome guys, I hope you find my work useful :)  Unfortunately the interpreted nature of python makes it very hard to test and catch bugs, you need to trigger execution of each line of code to tell that the method is indeed called with the correct parameters (which might have changed since Gtk+-2).  A really thorough testing/fixing is needed.  Probably there are quite some actions or config options that causes a crash or critical warning and failure the perform the required operation.  But at least it's easy to start it and make progress, fix the issues one by one.

The hard, albeit more interesting problem was to make it start up at all with Gtk+-3/Vte-0.37, and then to make it reasonably okay.  Unfortunately this process didn't consist of self-contained smaller changes that made sense on their own, so splitting it into a reasonable sequence of small changes would have required a significant amount of extra work, it just really wouldn't have made sense.

Thanks for the more detailed instructions on how to set up on Trusty/14.04.  Note that most likely a vte2.91_0.38 package will appear at https://launchpad.net/~gnome3-team/+archive/ubuntu/gnome3-staging/+packages in the near future, which will simplify this process.  (Even though the package is targeted at Utopic/14.10, hopefully it will also work on Trusty.)

For Precise/12.04, probably you can manually compile-install a recent glib/pango/gtk3/vte038 stack in some nonstandard directory and use that with Terminator; this might take a bit more nontrivial to set up than a VM, but would probably make subsequent Terminator development more seamless.

"Creating new tabs fail unless you add the /etc/profile" -- as far as I know, Ubuntu didn't upgrade Gnome-Terminal for a while because they failed to solve this terribly hard problem of sourcing vte.sh (it shouldn't take more than 10 minutes). If they ever upgrade Gnome-Terminal to anything newer than 3.6, that'll mean that they have solved it and Terminator doesn't need to care. Until then, Terminator might decide to bring back the old OS-dependant digging into /proc as a fallback if OSC 7 wasn't seen in the given terminal.

As for which version of Vte to develop for (tl;dr version: go for 0.38 only, forget the dual 0.36/0.38 approach)

Currently Terminator is ~3 years behind with the Vte it uses. It's really not bad if users don't receive the new Terminator-Gtk3 as soon as it's declared stable but they have to wait for a few more months before that. The real bottleneck is developer resource, so we should optimize for smaller developer cost, rather than letting everyone have Terminator-Gtk3 as soon and as easily as possible.

The earliest Ubuntu in which Terminator-Gtk3 has a chance to appear is VV/15.04. There's absolutely no reason vte2.91_0.38 couldn't also appear in that very same distro - especially if Terminator-Gtk3 brings it in as a requirement.

Given that Vte-0.36 and Vte-0.38 are incompatible and can easily co-exist, it should be very easy to create a PPA containing vte2.91_0.38 and terminator-gtk3 packages for Trusty, Utopic, and any other newer distros where these two packages are not shipped by default.

Making Terminator-gtk3 support vte-0.36 and vte-0.38 in parallel would require significant engineering effort and double testing work, and pretty much would not make it any easier for any user to get this piece of software compared to a 0.38-only approach. I would find it a total waste of engineering effort, for almost zero user benefit. I believe this time and eng capacity should rather be spent on fixing the remaining bugs in order to have a better app, and then hopefully in the near future (maybe in VV/15.04 already) users could get a brand new Terminator-gtk3/vte-0.38 combo out of the box.  Even if it's not out of the box, and even if that distro wouldn't ship vte-0.38 yet, installing 2 packages (vte-0.38 and terminator) from a given PPA rather than installing just 1 package (terminator) wouldn't make users' lives any noticably simpler. It would just be a serious waste of the very limited developer time.