On , I learnt ...
iTerm2’s “Cursor boost” feature will cause everything to appear dimmed
I had inadvertently moved the “Cursor Boost” slider to a high level and the terminal became very dim and hard to read. Resetting the slider to zero fixed the issue.
As noted in this Google Groups conversation, “Cursor Boost” could more accurately be called “Dim everything except the Cursor” and avoid this confusion.