Haskell - 224 characters
(%)=zipWith(++)
r x=[x]
l 1=r[1]
l n=r[a,a-1..b]++(m r[a+1..]%l s%m r[b-1,b-2..])++r[d-s*2..d]where{d=(n*2-1)^2;b=d-s*6;a=d-s*4;s=n-1}
p[_]='*'
p _=' '
i n=p[x|x<-[2..n],n`mod`x==0]
m=map
main=interact$unlines.m(m i).l.read
i'm not the best at haskell so there is probably some more shrinkage that can occur here
output from echo 6 | runghc ulam.hs
* *
* *
* * * *
* * *
* * *
* ** *
* * *
* *
* * * *
* *
*
this is a different algorithm (similar to @drhirsch's) unfortunately i cannot seem to get it below 239 characters
p[_]='*'
p _=' '
main=interact$unlines.u.read
i n=p[x|x<-[2..n],n`mod`x==0]
u(n+1)=map(map(i.f.o).zip[-n..n].replicate((n+1)*2-1))[n,n-1..(-n)]
f(x,y,z)=4*y*y-x-y+1+if z then 2*(x-y)else 0
o(u,v)=if(v> -u)==(v
