This actually works with the latest Nvidia driver (version 302.*).
Clearly the problem is with Nvidia.

** Changed in: unity (Ubuntu)
       Status: Incomplete => Fix Released

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https://bugs.launchpad.net/bugs/967309

Title:
  Unity/compiz doesn't start with dual screen Nvidia setup.

Status in “unity” package in Ubuntu:
  Fix Released

Bug description:
  Starting with no xorg.conf, I used the nvidia-settings tool to set up
  dual-screen Nvidia dual-monitor setup. Restarting X loads lightdm just
  fine and I login just fine but then Unity/Compiz never load. The
  background is the only thing that loads. Most people at my company use
  more than 2 monitors so twinview is not an option. Twinview does in
  fact work fine with 2 monitors though.

  ProblemType: Bug
  DistroRelease: Ubuntu 12.04
  Package: unity 5.8.0-0ubuntu2
  ProcVersionSignature: Ubuntu 3.2.0-20.33-generic 3.2.12
  Uname: Linux 3.2.0-20-generic x86_64
  NonfreeKernelModules: nvidia
  .proc.driver.nvidia.gpus.0: Error: [Errno 21] Is a directory: 
'/proc/driver/nvidia/gpus/0'
  .proc.driver.nvidia.registry: Binary: ""
  .tmp.unity.support.test.0:
   
  ApportVersion: 1.95-0ubuntu1
  Architecture: amd64
  CompizPlugins: 
[core,bailer,detection,composite,opengl,decor,mousepoll,vpswitch,regex,animation,snap,expo,move,compiztoolbox,place,grid,imgpng,gnomecompat,wall,ezoom,workarounds,resize,fade,unitymtgrabhandles,scale,session,unityshell]
  CompositorRunning: compiz
  Date: Wed Mar 28 12:05:46 2012
  DistUpgraded: 2012-03-27 15:58:32,872 DEBUG failed to SystemUnLock() (E:Not 
locked)
  DistroCodename: precise
  DistroVariant: ubuntu
  InstallationMedia: Ubuntu 9.10 "Karmic Koala" - Release amd64 (20091027)
  MachineType: Hewlett-Packard HP Z600 Workstation
  ProcKernelCmdLine: BOOT_IMAGE=/boot/vmlinuz-3.2.0-20-generic 
root=UUID=d68582ec-f48b-4e36-8cbf-e365293a2e70 ro quiet splash vt.handoff=7
  SourcePackage: unity
  UpgradeStatus: Upgraded to precise on 2012-03-27 (0 days ago)
  dmi.bios.date: 10/13/2010
  dmi.bios.vendor: Hewlett-Packard
  dmi.bios.version: 786G4 v03.13
  dmi.board.asset.tag: 2UA0500096
  dmi.board.name: 0B54h
  dmi.board.vendor: Hewlett-Packard
  dmi.board.version: D
  dmi.chassis.asset.tag: 2UA0500096
  dmi.chassis.type: 6
  dmi.chassis.vendor: Hewlett-Packard
  dmi.modalias: 
dmi:bvnHewlett-Packard:bvr786G4v03.13:bd10/13/2010:svnHewlett-Packard:pnHPZ600Workstation:pvr:rvnHewlett-Packard:rn0B54h:rvrD:cvnHewlett-Packard:ct6:cvr:
  dmi.product.name: HP Z600 Workstation
  dmi.sys.vendor: Hewlett-Packard
  version.compiz: compiz 1:0.9.7.2-0ubuntu4
  version.ia32-libs: ia32-libs 20090808ubuntu35
  version.libdrm2: libdrm2 2.4.32-1ubuntu1
  version.libgl1-mesa-dri: libgl1-mesa-dri 8.0.2-0ubuntu2
  version.libgl1-mesa-dri-experimental: libgl1-mesa-dri-experimental N/A
  version.libgl1-mesa-glx: libgl1-mesa-glx 8.0.2-0ubuntu2
  version.nvidia-graphics-drivers: nvidia-graphics-drivers N/A
  version.xserver-xorg-core: xserver-xorg-core 2:1.11.4-0ubuntu7
  version.xserver-xorg-input-evdev: xserver-xorg-input-evdev 1:2.7.0-0ubuntu1
  version.xserver-xorg-video-ati: xserver-xorg-video-ati 
1:6.14.99~git20111219.aacbd629-0ubuntu2
  version.xserver-xorg-video-intel: xserver-xorg-video-intel 2:2.17.0-1ubuntu4
  version.xserver-xorg-video-nouveau: xserver-xorg-video-nouveau N/A

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