I don't personally have a device with Android on it but I was wondering if it offers something similar to XTerm on my N810. Also anything similar to File Manager? Lastly, does Android support USB flash drives? Or is that a hardware thing?

Yes to terminal and filemanager. Although both have to be downloaded and installed from an app store first.
USB drives are not supported AFAIK, and the terminal is very limited if you haven't rooted your phone. Basically you are user of the terminal app and don't have much permissions to tamper with the system or other applications.

It also has extremely limited common tools in that terminal as well, as the normal Linux stack does not exist in android.

You have a very bastardized "ps", "cd", and various small ones (all of which are missing switches from the standard tools)... and that's it.

Even after rooted I had a hard time getting any use out of my androids terminal on the G1.

You have to remember that Android is not GNU/Linux, but Android/Linux.

That was what I was getting too.. though many people do not understand what that means in full.

Why are people bothering to port it for NITs then?

Seems like a waste of good resources.

Because there are apps Android has that people want on Maemo. (Google ones especially).

Maybe, but the problem is it's always going to be an unofficial build, and Google apps specifically are closed and not included in the free ports of Android.

So you still don't get them. (but you'll get access to third party markets.)