Drifting slightly off topic now, but anyway:
First of all: if things are working fine and you're not annoyed by any problems, you could always say "If it ain't broke, don't fix it"
XFS is, IMO, an archaic thing of old times, no longer necessary for X fonts. But if you want to, by all means, use it, you will probably not notice any difference. Either start up XFS (and check it's config) and uncomment the "unix/:7100" fontpath, or just leave it out, and put your systems font locations directly into xorg.conf.
The line tells the X server that it should look for fonts from a font server running at unix socket port 7100 (which is XFS). If that server isn't running, or not configured properly, X will probably fail. But since X also can look for fonts from directories in your system (look in /etc/X11/fs/config), you could simply just put in these instead, like I suggested earlier.
Many of todays modern X apps use the XFT/fontconfig solution (client side fonts), for example all KDE3/GNOME/GTK2 apps will use this. It's easy to identify: The XFT/fontconfig enabled clients' fonts are usually rendered with anti-aliasing (default), and have sane human readable names, like `Monospace 9', instead of `-monotype-courier new-bold-r-*-*-*-*-*-*-*-*-*-*'. The point is that this solution is not dependent(AFAIK) upon the old X-server provided fonts (which are configured in xorg.conf). They will therefore pay no attention to missing fonts there. But still, I find it weird your X server starts without XFS and no fontpaths configured in xorg.conf at all, perhaps the location of the "Fixed" font (necessary for X to run at all) is hardcoded into the server, for "emergencies". Check `/var/log/Xorg.0.log' for possible answers.
Hey, isn't this a nVIDIA driver forum, time to stop writing now=).