First, make sure you're using either SSH1 or SSH2 in Options->Properties->Connection
AbsoluteTelnet *does* support X Display forwarding, but you must be running some sort of X display software on your local machine. You'll probably want to use something like Exceed or try the shareware XWin32. If you believe you have the X server set up correctly, check the state of the 'X Forwarding' flag in Options->Properties->Connection->Forwarding. It should be set. If it is not, set it and disconnect/reconnect and try again. With this feature enabled, your DISPLAY variable should be set automatically. Do *not* attempt to change it as this will most likely cause everything to fail, or at least bypass the X forwarding.
Using this feature, X data is transparently tunneled through the secure channel your SSH session provides. From the UNIX server's point of view, the X display is on the UNIX box. From your X server's point of view, the X requests are coming from the PC running AbsoluteTelnet, so you may have to set the security accordingly. In this way, you can bypass a lot of security/firewall/blocking issues associated with most (non-local) network connections.
The above method is *very* different from setting a simple DISPLAY value in a telnet session. With telnet, the only option is to point the DISPLAY variable back at your PCs IP address and that only works if the routing/firewalling allows the server to address your machine directly.
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