I found solution that works for me.

I deleted whole ~/.config/compiz and ~/.gconf/apps/compiz directories,
and compiz is behaving properly afterwards - no more xv issues.

YMMV.

-- 
Compiz gets into a state where going fullscreen in apps causes an X11 BadAlloc 
error
https://bugs.launchpad.net/bugs/194638
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packagers, which is subscribed to compiz in ubuntu.

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