This problem started for me one I added "virtual 2048 2048" to my
default screen configuration, in order to use a second monitor with
xrandr 1.2

It worked fine before

Ati Mobility 7000 IGP

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[gutsy] Regression - "Desktop effects could not be enabled" on ATI Mobility 
Radeon
https://bugs.launchpad.net/bugs/144077
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