The last line of startx is:
xinit $clientargs -- $display $serverargs

And if there's an xserverrc this is added as the first argument of
$serverargs. Causing the final command to be:
xinit foo -- :0 /etc/X11/xinit/xserverrc bar

After which X exists saying that /etc/X11/xinit/xserver rc isn't a valid
argument.

To fix this apply the following diff:
--- startx.orig Sun Jan 30 17:15:32 2000
+++ startx      Sun Jan 30 17:15:52 2000
@@ -19,9 +19,9 @@
 fi

 if [ -f $userserverrc ]; then
-    serverargs=$userserverrc
+    server=$userserverrc
 else if [ -f $sysserverrc ]; then
-    serverargs=$sysserverrc
+    server=$sysserverrc
 fi
 fi

@@ -63,7 +63,7 @@
 xauth add $display . $mcookie
 xauth add `hostname -f`$display . $mcookie

-xinit $clientargs -- $display $serverargs
+xinit $clientargs -- $server $display $serverargs

 # various machines need special cleaning up,
 # which should be done here
----

I've also attached this to the bugreport for your convience ;)