I also had exactly the same problem on the final Ubuntu 7.10 yesterday.

The software source for package
   nvidia-glx-new
is not enabled.

I took me an hour to realize that the problem was related to the
repositories and not to the restricted manager itself.... I do know that
the error is self explaining, but not for everyone (or not everytime ;-)

-- 
Misleading error message - software source for package is not enabled
https://bugs.launchpad.net/bugs/134918
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Bugs, which is the bug contact for Ubuntu.

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