Got something similar in Lucid.
"error: Failed to allocate internet-domain X11 display socket" on the server 
(while in debug mode).

further debug showed:

...
debug2: bind port 6679: Cannot assign requested address
debug2: bind port 6680: Cannot assign requested address
debug2: bind port 6681: Cannot assign requested address
...

It had to do with IPv6.
I just had to add -4 to SSHD_OPTS in /etc/default/ssh (on the server) and 
restart sshd, it's all fine now.

-- 
no longer honors X11 forwarding
https://bugs.launchpad.net/bugs/136947
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