X server: can `No font cache available' cause problems?

[Shaul Karl <shaulka@bezeqint.net>]

  I can't see any indication that something is wrong other then the fact
that after
    /etc/init.d/xdm start
the `No font cache available' is the last line in /var/log/xdm.log.
There are hidden X related files in /tmp, there is an appropriate
/var/run/xdm.pid, there is a switch to VT7 and it doesn't get back to
any other VT, yet I can't see the XDM login screen. Similarly, startx
doesn't gives any indications that I can see that something is wrong but
X doesn't appear on the screen. 
  Any suggestions where to get a lead to what is wrong?
  The problem first appeared a few days ago, after I got the latest
update of testing. Suddenly, during the upgrade, the X screen
disappeared and the screen got blank. Just like now there is a switch
to VT7 but no actual display. I believe now it is something to do with
the update although at the time I was looking for a hardware problem and
didn't record the packages that were upgraded. It worked fine before
the upgrade.
  The machine runs testing and it is xserver-s3.
-- 

    Shaul Karl, shaulka@bezeqint.n e t