How can I customize the way my taxonomy terms are displaying?
Indeed a preprocess function is what you're looking for, I suspect in D7 this will help:

function MYTHEME_preprocess_html(&amp;$variables) {
if(arg(0)=='node' &amp;&amp; is_numeric(arg(1))) {
    $node = node_load(arg(1));
    $results = taxonomy_node_get_terms($node);
    if(is_array($results)) {
        foreach ($results as $item) {


In terms of D6, node-taxonomy.tpl.php and page-taxonomy-term.tpl.php should put you on the right path.