oddly enough, debb1046's suggestion did work! Thanks.

I did the following: logged in to failsafe-gnome, with wired connection. 
Command:
lsmod | grep -i nv
did not give any output.
Under Synaptic I uninstalled all packages (about 7) with names beginning with 
"nvidia-". Logged out and logged in to Gnome. 

Desktop is correct!

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[ubuntu lucid] Desktop unusable after upgrade from karmic
https://bugs.launchpad.net/bugs/542813
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