It depends of a lot of things... which desktop/window manager are they using? CDE? Gnome?. Also, as far as I know, xterm do no support transparency, so most likely, they are using aterm, which looks just like xterm and has a lot of cool features.
Best advice I would give you though, is to ignore those jerks. The hole point of being at school is to learn, share... if they wanna play bullies, screw them and get yourself a copy of Solaris for x86. It's free and you will learn much more important things then changing a background or adding transparency to a terminal...
My two swedish crowns