This also effected me using QEMU and installing from the alternate cd
image for feisty (i386)  onto a hard drive image. So could be tested on
a vitual machine by the person who tries to fix this bug.

To reproduce:
(Opt install qemu)
Install from alternate CD (not sure if this is the same with the desktop cd) 
xubuntu.
Open a terminal from the menu.
X will crash and restart bringing you back to the x login prompt.

-- 
Xubuntu 7.04 xserver crashes when launching terminal
https://bugs.launchpad.net/bugs/114124
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