I faced the same issue with my Asus netbook. Its an issue with Compiz' maximum 
virtual resolution capability for the netbook graphics chip. 
There's a workaround - placement of monitors. You could read on about this 
workaround here : 
http://www.geekytalk.snaga.net/2010/03/compiz-and-virtual-resolution-handling.html

Please leave a comment to let me know if it had worked for you.

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https://bugs.launchpad.net/bugs/674294

Title:
  Extended Desktop: "Desktop effects could not be enabled"

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