I found a work around although that's probably not a long term fix.
Just disable kernel modesetting: i915.modeset=0

This is working with 10.04 on 2.6.35.14 and 3.0.1 vanilla kernels and
probably more.

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https://bugs.launchpad.net/bugs/796030

Title:
  intel gma 4500mhd external monitor picture scrambled

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