Xephyr is a a kdrive server that outputs to a window on a pre-existing 'host' X display. Think Xnest but with support for modern extensions like composite, damage and randr. Unlike Xnest which is an X proxy, i.e. limited to the capabilities of the host X server, Xephyr is a real X server which uses the host X server window as "framebuffer" via fast SHM XImages. Would be nice to see it in portage.
Well, sorry but this is still available in CVS only. Feel free to reopen when an actual release is available.
USE=kdrive emerge xorg-server builds Xephyr :)