I'm not sure... Try the following:

On your GNU/Linux desktop PC, type
DISPLAY=10.0.0.126:0; xterm; echo $DISPLAY
(with 10.0.0.126 being a non-existent IP-address)

The output will be something like:
xterm Xt error: Can't open display: 10.0.0.126:0
10.0.0.126:0

Which tells me that xterm tries to open the display.

Now, on a N800 or 770, do the same (do it on the device itself, dont ssh into the tablet):
DISPLAY=10.0.0.126:0; /usr/bin/osso-xterm; echo $DISPLAY

Again, 10.0.0.126 doesn't exist. What happens is that the application starts, without any error. After you close it again, you'll find that "echo" still prints the expected line
10.0.0.126:0
so we know $DISPLAY contains what we said it should and didn't magically return to :0.0

I don't have the applications installed you tried, but I used xchat, the calculator etc., and they all never throw an error. they just start up as if nothing had happened - as if they wouldn't read $DISPLAY at all.