I have exactly the same problem except I didn't try running xterm too.
Following the instructions here:
http://www.linuxjournal.com/article/7298 , I issued Xnest :1 -ac & in a terminal. This is the terminal output:
dave@alicia-desktop:~$ Xnest :1 -ac &
[1] 5885
dave@alicia-desktop:~$ error opening security policy file /usr/lib/xserver/SecurityPolicy
Couldn't get keyboard.
Could not init font path element /usr/share/fonts/X11/TTF/, removing from list!
Could not init font path element /usr/share/fonts/X11/OTF, removing from list!
Could not init font path element /usr/share/fonts/X11/CID/, removing from list!
X connection to :0.0 broken (explicit kill or server shutdown).
There's no /usr/lib/xserver/, and no /usr/share/fonts/TTF, OTF, or CID.
PLEASE, someone, any help?