In this case, this chap had a trouble getting X11 forwarded over an SSH tunnel. Everything looked fine, the same setup on another machine worked just as it should, all the flags (X11Forwarding) were set correctly but still the $DISPLAY envariable wasn't set on the remote side.
The bottom line - the loopback device ("lo") wasn't configured. This can be checked with a simple "ifconfig".
The break-through in the investigation came when he executed sshd in debug mode and received the following errors:
debug2: bind port 6999: Cannot assign requested addressSome googling revealed the following post, which actually gave the answer (so at least some of the credit should go to Jim Prewett, who bothered to document his findings four years ago): http://marc.theaimsgroup.com/?l=openssh-unix-dev&m=104336969724537
Failed to allocate internet-domain X11 display socket.
WARNING: You have to run sshd in debug mode on an alternate port because sshd debug mode will only serve one connection then exit, so you have to keep your existing non-debug sshd running or else you'll lock yourself out.