The X Window System didn't immediately have X terminals

The tricky thing about justifying an X terminal is that it requires a nice graphics system and probably a nice cpu to drive that graphics system as well, so really the only thing you don't need is storage. basically it is hard to save money because you are buying most of a nice computer anyway.

It's similar to the issue plan9 terminals have. As long as you have a CPU with an MMU and some RAM (which you need a fair amount of for the graphics anyway) you might as well just run the software locally. All the peripherals are relatively cheap.

You don't need an MMU-capable CPU to render remote graphics. You don't even need much more RAM than a local framebuffer, which for low resolutions/color depths is very little RAM.

Proving this point, there are VNC client implementations that can run on MS-DOS machines.

You probably do need it to run Xorg though. I'm unaware of an X server that can run on DOS.