Doing the workaround worked! Here is what I did

1) ALT+F1 (to get to console)
2) stopped gdm
3) unloaded modules radeon drm
4) reloaded modules radeon drm
5) ALT+F7 to get to xwin .. logout
6) start gdm

The order is a little clumsy .. but it just worked after I did this. So
the problem is how the radeon drm module is being loaded.

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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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