We are unable to launch virt-manager application and I am getting "RuntimeError: could not open display" error on Red Hat Enterprise Linux 4.5 and 5. How do I fix this?

Issue

The traceback error listed below indicates that the localhost entry in /etc/hosts file is missing or incorrect.

_X11TransSocketINETConnect() can't get address for localhost:6010: Name
or service not known
Traceback (most recent call last):
File "/usr/share/virt-manager/virt-manager.py", line 59, in ?
import gtk
File "/usr/lib/python2.4/site-packages/gtk-2.0/gtk/__init__.py", line
76, in ?
_init()
File "/usr/lib/python2.4/site-packages/gtk-2.0/gtk/__init__.py", line
64, in _init
_gtk.init_check()
RuntimeError: could not open display