Capital I is pretty sucky (hard to distinguish from l and i and |). Monaco 9pt fixes the angle brackets and is more vertically compact than the xterm font (same horizontally). Upper case characters ('A' in particular) also don't look as good in Monaco. Monaco has the advantage of slashed zeros but has worse angle brackets (they bump into adjacent characters awkardly, eg, '~>'). I don't think the squishing harms readability. Without the line space squishing it takes up more vertical space. 9 line spacing (I don't know how to squish line or character spacing in anything other than Terminal.app) takes up exactly as much vertical and horizontal space as the xterm font.
