$ startx -- /usr/bin/Xephyr :2
You might have Xnest (older) rather than Xephyr.
You can experiment with other desktops eg:
startx /usr/bin/start-kde -- /usr/bin/Xephyr :2
You can start X on a remote machine (although I'd recommend vnc for anything slower than a LAN):
startx /usr/bin/ssh -X gnome-session -- /usr/bin/Xephyr :2
Or just start another X session locally talking to the remote backend:
by David Winterbottom (codeinthehole.com)
"