Starting with OS X 10.5, Apple made major changes to the included Xserver, which is now started automatically by launchd when required, and based on the Xorg server rather than on Xfree86, as with 10.4 and below.
In Tiger, it was possible specify the DPI while starting the Xserver, but for obvious reasons, that is no longer possible. I was unable to find any workable solution for microscopic fonts, until I read a thread on MacOS Forge that stated that the launchd auto-starter included in their community-supported Xserver releases actually just runs the startx command.
This is great news, because startx is a script that can be edited. So I installed the latest packaged build available from their website, then opened a Terminal window, and pulled up the startx script in a text editor: sudo nano -w `which startx`. Then I pressed Control-W and located the string defaultserverargs, and changed the first occurrence in the file from this...
defaultserverargs=""
... to this ...
defaultserverargs="-dpi 96"
Then I pressed Control-X to exit, and telling nano to save the changes when prompted.
Now the next time I started X11, my display reported a resolution of 96x96 dpi. You can check what X11 thinks your screen resolution is with the following command:
xdpyinfo | grep -i resolution
Note that the dpi change will have to be re-applied each time you install a new build of X11 from MacOSforge. You may also find that this tip doesn't work if you replace the community supported builds with an Apple-supported build of X11.

