Referred to this bug report from Ubuntu forums:
http://ubuntuforums.org/showthread.php?t=441561

I see this problem in compiz *without* using xserver-xgl, but rather
with GLX capabilities in the open source ATI video driver, so the bug
may lie elsewhere.  Indeed, I see the problem even when I just enable
System->Preferences->Appearance->Visual Effects->Normal (i.e. no compiz
at all).

The artifacts are especially bad when slowing dragging windows up or
down.  I'm attaching a screenshot.

My specs:
HP NW8240 Laptop
ATI Technologies Inc Radeon Mobility X700 (PCIE)
Ubuntu v7.10
compiz 0.6.0+git20071008-0ubuntu1.1
libgl1-mesa-glx v7.0.1-1ubuntu3
libgl1-mesa-dri v7.0.1-1ubuntu3
linux-image v2.6.22-14-pentm+suspend2 (tuxonice patch, compiled for Pentium M)
xserver-xorg-video-ati v6.7.197-1ubuntu1~tormod (patched to fix problem with 
LCD display sync)
xserver-xorg v7.2-5ubuntu13


** Attachment added: "compiz_mouse_pointer_bugs2.png"
   http://launchpadlibrarian.net/11077466/compiz_mouse_pointer_bugs2.png

-- 
Xgl: Display bugs near mouse pointer
https://bugs.launchpad.net/bugs/114127
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