Seems we've found a regression in recent konsole-16.08.x releases, that application desktop files with Terminal=true no longer work.
Issue is tracked (downstream) https://bugzilla.redhat.com/show_bug.cgi?id=1376981 (upstream) https://bugs.kde.org/show_bug.cgi?id=368949
I'm investigating this, but any help or insight would be appreciated.
-- Rex