I had the same error. To fix this I installed ubuntu in new partition,
and copied the below files from xorg 7.4+3ubuntu7, then everything was
ok with the old partition.
/etc/gdm/failsafeXinit 
/etc/gdm/failsafeXServer

Attached is the log file when it failed.

** Attachment added: "Xorg.failsafe.log.old"
   http://launchpadlibrarian.net/36420338/Xorg.failsafe.log.old

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Garbled screen after updating x11-common
https://bugs.launchpad.net/bugs/490922
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