Does anyone know which monospace font in the Terminal program or iTerm is the best to use at very small font sizes?
My choice would generally be Lucida Grande or Anadale Mono; Some days I'm more in the mood for Monaco though too. If my eyes start getting tired I ditch the small fonts for a few days if possivle. Depending on the shell I'm running, I've had Anadale Mono cranked all the way down to 5 point and still readable (provided I have access to an electron microscope as backup).
This depends somewhat on your definition of "best" and "very small size," but at 9 or 10 points, I'd have to give a shout out to Monaco, one of the fonts from the original Mac. The font is bitmapped so it is specifically designed to be readable at 9 and 10 points (that said, Terminal doesn't take advantage of the bitmapped 9-point Monaco, and scales the vector version instead -- I don't know what iTerm does. You can tell the difference because the bitmapped 9-point Monaco has a rounded capital A, but the bitmapped 10-point has a pointy A.). In general, a bitmapped font well crafted for a particular number of pixels will display better at that size than a scaled vector font.
Getting smaller than that, Monaco loses its edge. Subjectively, I find Menlo, the default Terminal font in OS X Snow Leopard and beyond, to be much more readable at 6 point than any of the other monospaced fonts on my system.
Inconsolata-dz at 7pt is still legible to me on my MacBook Air (1440 x 900 x 32) in iTerm, if I use anti-aliasing.
I'm not saying that I'd actually choose to use it for any length of time, but if I had to… I could.