Do you have the xserver-xgl package installed?  If so, this is normal
behaviour and a duplicate of bug #63602.

You can check whether you have this package installed in Synaptic, or by 
running "dpkg --list xserver-xgl" at a terminal - if you have it installed the 
output will include something like:
ii   xserver-xgl   1:1.1.99.1~git  GL-based X server

If you do have this package installed, does creating a file named
"disable" in the ~/.config/xserver-xgl directory, then restarting make
nvidia-settings work again?  You can create this file by running "mkdir
-p ~/.config/xserver-xgl ; touch ~/.config/xserver-xgl/disable"

** Changed in: linux-restricted-modules-2.6.22 (Ubuntu)
   Importance: Undecided => Low
     Assignee: (unassigned) => Chris Halse Rogers (raof)
       Status: New => Incomplete

-- 
gutsy: nvidia-new -- nvidia-settings no longer works
https://bugs.launchpad.net/bugs/144750
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