I also have this problem. For me it reports the following:

pa...@palsa-eeepc:~$ xeyes
X11 connection rejected because of wrong authentication.
Error: Can't open display: palsa-eeepc:10.0
pa...@palsa-eeepc:~$

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X11 forwarding via SSH does not work after upgrade to karmic
https://bugs.launchpad.net/bugs/434799
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