hello,
first, sorry for my english...
same problem for me, installing kubuntu 7.10 and linuxmce 7.10 (core/media), and reboot, and "failed to setup x". Alt+F2 and i can login with login and pwd created in kubuntu, but nothing else. had trying that : sudo dpkg-reconfigure -phigh xserver-xorg, waiting a few minutes, reboot, and a nice green graphical interface appeared. then i hope it could be the same for you.