How can I set the Mac OS X terminal history to act like linux when using up/down arrows?

Mark who commented on my questions above was correct. This is a bash setting. If you add the following to your ~/.bash_profile script, you will get this behavior.

HISTCONTROL=ignoredups

You can also ignore any lines that start with a space:

HISTCONTROL=ignorespace

Or do both, by using:

HISTCONTROL=ignoreboth

Assuming that you are using bash then

HISTCONTROL=ignoreboth

or

HISTCONTROL=ignoreboth:erasedups

in one of your bash rc file(s).