I got the following reply from Altera Technical Support and their solution worked (although I must say it is actually a workaround as it opens the terminal window in addition to ModelSim)!
the software team has found out that the nautilus used in gnome has to be version 2.8.1 or greater in rhel 4 in order to launch the modelsim-altera using desktop launcher with "run in terminal" function turned on. the steps to create the desktop launcher are show in the following. 1. right click mouse button and select the create launcher 2. fill in the name , comment and command. for command field, you can fill in the full path vsim command for example for my machine, i enter '/build/altera/modelsim_ae/linuxaloem/vsim' or just type 'vsim' if you have add in the modelsim-altera install path to path environment setting. 3. please select the check box "run in terminal". 4. select ok button the launcher will create in your desktop with your specify name. test in by double click the file. it should be able to launch modelsim-altera if the setting to it license files or server ( check this by echo $lm_license_file) and the path are correct. If anyone has an idea as to how opening the terminal window can be avoided, please share it (although I am content with the above solution now :) ).
Regards,
Kumar Vijay Mishra.