I have GNU Emacs 23 (package emacs23) installed on an Ubuntu 10.04 desktop machine and package emacs23-nox installed on an Ubuntu 10.04 headless server
For me running emacs -nw from inside byobu with TERM=xterm produced the correct colours for syntax highlighting (the comments in python and bash are all red not just the #) and the function keys work. Note I set TERM as part of an alias for running emacs rather than setting it generally in .bashrc:
alias emacs='TERM=xterm; emacs -nw'
See also this post: Terminal emacs colors only work with TERM=xterm-256color