What I'm looking for is how to configure the terminal so that it behaves like nano -m. I know that xterm inside fvwm2 running on slackware does this but neither gnome or kde does it. I have tested installing fvwm2 in Ubuntu but xterm still does not have that feature.
You can enable mouse position reporting on an X11 terminal emulator, but you need a co-operating application to read the position and act on it. The terminal doesn't do it on its own.
If you're just using the command-line, this won't be very useful unless you have a mouse-tracking version of
Here's a very long list of various terminal directives, including mouse tracking on various terminal emulators.