If you have an encrypted home directory but not encrypted tmp (though you should!) then you can set the TMP environment variable to ~/tmp (and create a tmp dir in your home dir) and libvte will write to there instead (confirmed with gnome-terminal).
Rather than bothering with encrypted /tmp I believe lots of people are advocating using tmpfs with /tmp. This way data stays in ram and only possibly goes to swap. In the worst case you have to read the data from the disk again, in the best case it's right there in ram and reads back fast. I've heard a number of programs that make lots of small files in /tmp will benefit from this, but ideally the disk cache would suffice.
This still means that an encrypted swap is a good idea. Either that or don't even have it as a separate partition, since some point in linux 2.6 series of kernels it got to be very efficient at using a file as swap. This means that you've only got one set of keys to manage, and it's much easier to setup (in fact it's likely supported by nearly every distro that supports encrypted root filesystems out of the box).
I personally like to name my swap files /WIN386.SWP
Right, that's also possible, but I like the new key every boot as it gives forward security. Even if the key for the whole image is cracked (which is easier to bruteforce than a completely random key as it is usually human-memorizable), it will not be possible to access the swapfile/temp contents.
