I confirm this bug on a system with the following configuration:

lsb_release -rd
Description:    Ubuntu 8.04.4 LTS
Release:        8.04

Asus P4PE motherboard, ATI RV350 AS [Radeon 9550] graphic card.  The
video driver in use: xserver-xorg-video-ati.

I experience this bug as described by the original reporter, except that
neither user's logout, no gdm restart does not help.  The only thing to
stop this annoyance is to reboot.

There are additional problems that accompany this bug on my system.  I
am not sure whether they realy are related, or just overlap, or one
causes the others.  But to me they all look as a part of a larger
picture and might be symptoms of a deeper problem.

It may be important to note that the bug in question here and the ones
I'm going to describe below, showed up approximately at the same time -
1-2 months ago.  They happen once in a wile, with abut the same
frequency and not always all together.

It also may be important to note, that before mentioned period of time I
had a perfectly stable LTS machine. Thus it looks like these problems
slipped in with the last 1-2 months updates.

1. About 4-5 times in the mentioned period my monitor all at a sudden
get black with a message "no signal" on it. Twice a keyboard was blocked
completely and I had no choice but push the power button off. One time
Ctrl-Backspace helped. Another 1-2 times I used "Magic Key" sequence
(RSEIUB) to reboot.

While troubleshooting "no signal" problem I found all at a sudden that
my "direct rendering" was Off with an glxgears reported very low frame
rate - about 220 FS comparing with usual 1700-1800 FS. Reinstalling
xserver-xorg-video-ati and other related packages seemingly fixed
things.

But on the next day, after the second user get logout and I get login, I
checked my video driver state, and found the problem was back: no
"direct rendering" and low frame rate.

At this moment I found system log showed gdm running at the background
in an loop attempting to login as the described by original bug reporter
endlessly. And after I turned my speakers on I was certainly greeted
with damn drumbeats.

This was the first time I had some indication 2 problems might be
related (X get slow because gdm was taking a lot of resources?).

2. About within the same period of time my system stopped reacting on
mouse clicks properly. Occasionally there are periods with quite a
notable delay between a mouse click and the system response. Sometimes
to close a window I have to click on the Close button 2-3 times for
system to react.

Sorry for a messy and lengthy description.  It's quite difficult to
provide with what I started seeing as a one picture. Unfortunately
neither of above I can really reproduce.  They come and they go. The
larger scale troubles, like gdm looping and monitor loosing signal, do
not happen very often. But the mouse gets retarded and video frame rate
gets low on a daily basis now.

The last thing to mention. I share my desktop with another user. We run
it all day long and use Switch User applet intensively. It is quite a
rare case that one of use logout.

Hope this helps.

-- 
In multi account environment, gdm starts looping , making failed login noises;  
pam_unix(gdm:auth)
https://bugs.launchpad.net/bugs/261661
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