I am writing a daemon that uses XML-RPC to receive method calls to start processes that are identified in the XML-RPC method parameters. Everything is up and running but I cannot figure out how to start a process (given the command line) in a new terminal window. I need to do this in order to provide user interaction with each process that gets started.

Strictly speaking, starting a command in another terminal window is fairly easy: xterm -e /path/to/command. However, the problem you'll likely run into will be X client authentication. If your daemon is running as root, it wouldn't be hard to fork off a child process that takes on the client user's identity and sets up the necessary environment to use the user's existing X client, and then spawns the xterm. (You could probably use either fork() or exec() for the xterm, depending on how you want it to run.) But if you daemon will be running with lower privileges, building an environment where you can launch an xterm on the user's X client connection may be (should be) impossible.