Ah, got it. I'll leave the machine in it's exisiting state for further testing. 
It's not a primary machine (right now) so it's not a problem for me to continue 
troubleshooting if it can help. BTW: no issues with my nvidia-96 drivers 
w/regard to compiz et al. But a user on the users list mentioned that he 
"fix'ed" his issue:
<quote>
I had exactly the same problem on a desktop pc after an upgrade from
9.04 to 9.10. 
For some unknown reason, the screen resolution has been modified during
the upgrade process to an unsupported value. 
I changed the screen resolution according the monitor's specs and the
"login loop" problem disappeared. 
</quote>
Not sure if that is related to this particular bug, but thought it worth 
mentioning.

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