My problem was a variance on this theme, disabling NVIDIA drivers did not work 
after the upgrade to 8.10 (from 8.04).
I checked xorg.conf and the driver was not changed to 'nv' even though the GUI 
status showed the NVIDIA driver(177)  deactivated  - my reason for deactivating 
was frequent complete crashes with no recourse to a terminal.
I then found that the problem was gnome-session-daemon which reported my 
monitor as 'unknown' its a Dell P992 and offered a maximum 1024x768 at 50hz - 
looking at the NVIDIA X Server Settings application showed the same resolution 
but 85 hz and any changes were blocked.
Currently I keep the system going by stopping the gnome-session-daemon in 
'system monitor'
and avoiding all changes which re-activate it e.g. Screen Saver
If the daemon starts it overrides the NVIDIA application and reverts to the low 
settings and crashes.
Does this justify a separate bug?

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On upgrading to Intrepid Ibex unable to activate nvidia restricted driver using 
the "Hardware Drivers" app
https://bugs.launchpad.net/bugs/278665
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