I tryed almost everything and was about to give up on ubuntu12.04 as regards X11 forwarding.
when I decided to try a few off the wall ideas that were like things I had read. All I ended up needing was to stop X11useLocalhost.
You need to add: X11UseLocalhost noAdd X11UseLocalhost no to /etc/ssh/sshd_config/etc/ssh/sshd_config and restart the SSH server.
ifIf you get no DISPLAY set and, check if xauth is installed correctly and then try it again.
RHE/CEntos doesntdoesn't have this issue, this is a UBUNTUUbuntu thing!