I'm not quite clear what's happening, first it sounded as if X wasn't working at all, but the edit comment about the X cursor makes it sound as if X is working, but instead of loading a real window manager, it's using the X default (xwm I think?). Can you post the contents of /etc/X11/XF86Config-4 and ~/.xinitrc? Also, please further describe what happens after startx is run. So you get an X cursor up, does it move when you move the mouse? Does a menu appear when you left click?
I'm pretty sure that it's just a case of your ~/.xinitrc file being overwritten (perhaps by that redhat utility you talked about, haven't used redhat). If that file is blank, you would add a line like "exec startkde". Obviously, that's a kde only command, if you use Gnome or someother window manager, you'll have to find their equivalent.