Ok, I seem to have resolved the issue here.
Specs:
Jaunty 9.04
2.6.28-11-generic
Display controller: Intel Corporation Mobile GM965/GL960 Integrated Graphics 
Controller (rev 0c)

Reinstalled server edition, installed generic kernel, installed plasma,
compiz and related packages, xinit and kde-core in that order. With bare
minimum KDE4.2 and installing apps one by one I have not had a single
freeze. Compiz with skip_checks "just worked" and performance is faster
than it was when I installed kde-core with additional KDE components as
done previously. Something in KDE it seems is causing the issue for me
at least on Intel and it seems the order listed above that I installed
packages in does not include the problematic package.

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[jaunty] System randomly freezes
https://bugs.launchpad.net/bugs/352373
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