Thanks for the x2x tip. It was very useful in diagnosis.
I discovered the problem was with the PC RealVNC viewer configuration on the PC I used to test. The default option in the advanced settings is to render the cursor locally (on the PC viewer). As soon as I switched that off the rendering was done by Xvnc server and therefore appeared on the PC viewer.
I went back and tested with Kindle vncviewer and it all works. Perhaps I missed the cursor first time around as it appears black against a black background or maybe I was too aggressive on the mouse movements as I note the updates to the Kindle are laggy, over usbnet at least.
FYI: I tested x2x between two native X servers on Archlinux/RPi and it appears to work as well as x2vnc. There maybe a slight advantage in using x2vnc as it may have some Xvnc logging advantages but I've fully investigated any logging x2x may have.
When working through the problem I noticed that tightvnc server standard output indicates the number of mouse and keyboard events from x2vnc when the client disconnects. So I noticed when I killed x2vnc that tightvnc was actually picking up the mouse pointer events so that gave the clue about the viewer problem. The logging events with Xvnc aren't there when using x2x.
My next steps are look more configuration of the basic Openbox is required now as there's no usable applications but that's a different problem.
Thanks for the help @hawhill. Works as per your original post on the Raspberry Pi with Archlinuxarm.
Last edited by sunnydev; 07-18-2012 at 04:06 PM.