If I ssh to another host with X11 forwarding, and I start up an xterm, I cannot close the window by clicking on the Window close button. This same behaviour does not hold true for Xfce Terminal. This holds true for our existing 126.96.36.199 install as well.
I'm sorry, how this could a bug with window manager?
FYI the window manager uses the std WM_DELETE_WINDOW message to inform the application that it should terminate.
The application may or may not terminate. In the case you describen xterm is not responding the WM_DELETE_WINDOW message. The problem doesn't lie in the window manager...