I changed
#X11Forwarding no
to
X11Forwarding yes
and restarted the openssh server and didn't have any luck connecting to it with either PuTTY or openssh on Cygwin from my Windows 7 box.
I had a feeling there might be something lacking or mis-configured in my ssh clients so I did a web search for "X server for windows" and found a reference and link on stackoverflow.com to Mobatek's "MobaXterm 6.6". I grabbed the free (GPL) version of it to try out. It worked like a charm, verifying that in fact my sshd config is correct and my other Windows-side ssh programs are in some way not correct.
It is very strange to see my remote linux apps seeming to share a desktop with local Windows apps - and wbar looks kind of stupid in the bottom center, spanning the gap between two monnitors.
I've been pondering the whole remote GUI thing off and on for a while and I hank you experts for making clear how to go about it.