Fixed!
Earlier I was just looking at xclock program's error msg. But when I scanned Mobaxterms client terminal's output, I found the following msg:
X11 forwarding request failed on channel 0
After some google hunting, found that one of the reasons this happens is when xauth package is not installed on the remote server. So, I checked and found that to be the case. This is the command I ran:
zypper in -name xorg*
This command tells you if the package is installed and if any dependencies exist. The package comes bundled with the xclock program. So zypper uninstalled the other xclock I had installed from another source and replaced it with the right version.
Link to package info: https://www.suse.com/LinuxPackages/packageRouter.jsp?product=server&version=11&service_pack=&architecture=i386&package_name=xorg-x11-xauth
I also modified a file called /etc/ssh/sshd_config as root. The following lines need to be uncommented:
X11Forwarding yes
X11DisplayOffset 10
X11UseLocalhost yes
And X11UseLocalhost was changed to 'no'. I also changed my security group on AWS to let inbound traffic on port 6000. I am not sure if that matters.
After this mobaxterm automatically set my display parameter to localhost and I was able to run xclock on the remote server and see it on my local PC desktop.