Help! OS X folded sections: invisible in Terminal (but visible in iTerm2)

Hi,
I'm using terminal vim 7.4 on OS X.
I was surprised to discover that in Terminal app, folded sections aren't displayed properly - they're invisible!

If I open the same file (same vimrc, same colorscheme, same everything) in iTerm2, folded sections are displayed nicely. How come?

Since I'd really like to switch back to default Terminal app, I'd like to know - what's the catch?

I'm attaching the image of the same file shown in both Terminal and in iTerm2 (basically you can't see folded sections in Terminal app on the right).

Here's some more info:
Colorscheme is 'desert256'

Highlighting:
Folded xxx term=standout cterm=bold ctermfg=0 guifg=Cyan guibg=DarkGrey
FoldColumn xxx term=standout cterm=bold ctermfg=0 guifg=Cyan guibg=Grey

Any help is appreciated!

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