I know the towing capacity for the x with manual is 3500 lbs. and the automatic is 5000 lbs. Is the lower capacity of the manual due to the clutch and can you tow more if you put in a heavy-duty clutch?

I've heard lots of people assume it's the clutch, but I haven't heard any one really "speak with authority" on the subject. It could be the clutch, or it could be the manual tranny itself is weaker.

The heavier the tow, the more clutch slip you will need to get going. Your clutch will last much longer towing 3500 as compared to 5k

This subject has been beat to death many times. The torque convertor in the automatic helps give more "go" for towing, while taking it easy on the rest of the drivetrain.

Read this thread on NOR where I detail my towing experiences with my boat and my Frontier 4wd 5-speed:

http://www.nissanoffroad.net/messageboard/topic.asp?TOPIC_ID=16656