Well, the best guess I can do is that the Ubuntu xorg upgrade made xorg
itself more strict when dealing with vesa cards. Maybe te KVM emulated
card wasn't completely compliant with the standards. Please note that
this is a complete guess, and may be completely incorrect. Can you
confirm kvm-85 solves the problem for you?

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[jaunty] vesa driver stopped working (no devices found) inside KVM after X 
update
https://bugs.launchpad.net/bugs/356133
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