When a call is made to an ISP, No programs will start in Xwindows. You have to start all the programs first. You can start the dialup program, but when you press connect and probably the pppdeamon starts, it is over. Installed my linux both as a networked workstation and a dialup workstation.
What dialup program are you using?
I had this problem, too. I traced it as far as the script in /etc/sysconfig/network-scripts/ifup-post. There is a part of the script that (re)sets the hostname. It's not supposed to do it when you use ppp, but it does anyway, and it screws up X. My fix was to simply comment out that part of the script, which will work fine if all you are using for networking is ppp. I suppose otherwise you wouldn't want to change your hostname, anyways. A little debugging seemed to indicate that $DEVICE in this script is not initially set correctly. I guess whatever calls this script sets this variable, but I didn't pursue it any further.
X authentication is based on hostname, so when the hostname changes, no new X clients can connect. Our scripts only change the hostname if the hostname is set to "localname.localdomain" -- this is so that with services like DHCP, the hostname can be assigned dynamically by the network administrator. You can set the hostname to anything else and then our scripts will honor your setting.
DEVICE is set in each of the /etc/sysconfig/network-scrips/ifcfg-* files. If it isn't set (a tool failure that I'm not aware of) the comparison does not fail. We don't set the domain name on PPP and SLIP connections now anyway, so this bug report has been handled via that mechanism as well...