the path you give that variable needs to be relative to /opt/ltsp/i386
so in your case it needs to be XF86CONFIG_FILE = /etc/xorg.conf.livecd

according to your logfile the card isnt capable of using 32Bit depth,
does it work if you set X_COLOR_DEPTH=16 ?

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ltsp does not configure xorg.conf correctly
https://bugs.launchpad.net/bugs/149006
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