Also affecting me. The following points may be of interest:
 
1. Graphics: NVIDIA GeForce G210M with 512MB DDR Dedicated Memory.
 2. Machine: Lenovo G550 NTDF3UK (Laptop)
 3. Previously I upgraded (on the standard driver) from 11.10 to 12.04 and this 
issue did not occur.
 4. I erased and reinstalled my entire OS (for fun) and then the issue started. 
I have tried with the default driver and also with the proprietary driver in 
'Additional Drivers' and both exhibit the same issue.
 5. If I keep rebooting my machine it eventually recovers and logs me into the 
desktop. Sometime it logs me in first time, other times it takes around2-3 
reboots and then it is fine again until the next time.
 6. I've attached my output from SysInfo in case anything in there is of 
interest (GM_SysInfo).
 
Does anyone know a timeline for this fix because this is really spoiling what 
is an excellent Ubuntu release and it is incredibly tedious to keep rebooting 
to get to a desktop (I don't know of a 'smarter' way to start the desktop 
(running startx from within low graphics mode does not invoke the launcher or 
the panel).

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You received this bug notification because you are a member of Desktop
Packages, which is subscribed to lightdm in Ubuntu.
https://bugs.launchpad.net/bugs/993579

Title:
  lightdm improperly report low graphics card

Status in “lightdm” package in Ubuntu:
  Confirmed

Bug description:
  Today, after reinstall my nvidia drivers, I started to get an error
  after X starts, before lightdm login screen, saying thar my computer
  was in low graphics mode and asking me what to do. Whatever option I
  choose, the screen backs to the terminal.

  I thought for hours that I had a X driver problems, and tried a lot of
  drivers, nouveau, nvidia-current, nvidia-current-updates... No
  success. After search a little bit on the internet, I found this site,
  http://ubuntuforums.org/showthread.php?t=1970586 saying that after
  change to gdm the problem were gone. So I did, everything is working
  fine, with gdm + unity-2d-shell.

  I found other users complaining about similar problems:
  http://askubuntu.com/questions/128375/low-graphic-mode-after-upgrade-to-12-04
  
http://askubuntu.com/questions/125453/your-system-is-running-in-low-graphics-mode-with-an-ati-radeon-3200-graphics-car
  
http://askubuntu.com/questions/129776/how-do-i-fix-running-in-low-graphics-mode-ubuntu-12-04
  
http://askubuntu.com/questions/127606/your-system-is-running-in-low-graphics-mode-on-an-acer-aspire-5552

  Please ask if you need more info.

  ProblemType: Bug
  DistroRelease: Ubuntu 12.04
  Package: lightdm 1.2.1-0ubuntu1
  ProcVersionSignature: Ubuntu 3.2.0-24.37-generic 3.2.14
  Uname: Linux 3.2.0-24-generic x86_64
  ApportVersion: 2.0.1-0ubuntu7
  Architecture: amd64
  Date: Tue May  1 14:48:02 2012
  InstallationMedia: Ubuntu 10.04 LTS "Lucid Lynx" - Release amd64 (20100429)
  ProcEnviron:
   TERM=xterm
   PATH=(custom, user)
   LANG=en_US.UTF-8
   SHELL=/bin/bash
  SourcePackage: lightdm
  UpgradeStatus: No upgrade log present (probably fresh install)

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