Why can't I paste into xterm (XQuartz)?

You need to middle-click to paste the contents of the OS X Pasteboard (as the X11 settings call it.) If you don't have a middle mouse button, turn on "Emulate three button mouse" in the X11 Preferences under the "Input" tab, along with "Enable syncing" and "Update PRIMARY when Pasteboard changes" under the "Pasteboard" tab. Then you can paste whatever you copied in the rest of Mac OS X by holding down Option and clicking.

If you want to use ⌘+V, you can put this line into your .Xdefaults file:

*VT100.translations: #override  Meta <KeyPress> V:  insert-selection(PRIMARY, CUT_BUFFER0) \n

Then make sure that "Update PRIMARY when Pasteboard changes" is enabled under the "Pasteboard" tab in X11 Preferences. You may need to ensure that you don't have anything in .Xmodmap (or elsewhere) changing relevant key mappings. To apply your new settings, either quit and restart X11, or run xrdb -merge ~/.Xdefaults and then open a new xterm.

Selecting text in xterm, and hitting ⌘+C to copy, should work, if you have turned on "Enable key equivalents under X11" under the "Input" tab, and "Update Pasteboard when CLIPBOARD changes" under the "Pasteboard" tab.

do you have a 3 key mouse? press the wheel key, it will paste the content of the clipboard to the cursor location.