First of all, make sure that you have the X clients installed in the filesystem that you're going to boot. Then boot the virtual machine and set up networking to the host. See the networking tutorial for instructions on doing that. If necessary, xhost the virtual machine on the host.

At this point, set your display to the host

UML# export DISPLAY=host-ip:0

and run whatever X clients you want.

Before booting the virtual machine, make sure that it contains Xnest, which is the UML X server. On some distributions, it is packaged with the X clients, and on others, it's not. Then boot the virtual machine, and follow the directions above to run Xnest displaying on the host. Xnest will create a window which will be its root window. All clients of the Xnest will be displayed within that window.

Now, set your display to the default local X server:

UML# export DISPLAY=:0

and run whatever X clients you like. I normally run fvwm2, which gives me enough of an X environment that I don't need to go back to the console.

See the virtual network and X session screenshots for examples of X in action under UML.