I have a fresh install of Gutsy with fixed IP address and the above
symptoms.

What happens? sshd tries to bind forwarded X connection to
127.0.0.1:601*. The binding process fails because there is no IP address
127.0.0.1 available. When investigating matter, I found out that my
loopback (lo) interface did not have any IP address.

So, what ip addr show lo says?

It looks like the /etc/network/interfaces misses iface lo stanza in
default install (but it is there in the upgraded installations).

Perhaps problem is because NetworkManager fails to set "lo" up?

-- 
no longer honors X11 forwarding
https://bugs.launchpad.net/bugs/136947
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