Yes Travis, I had doubts too about compiz.

In the meantime I found there is a problem in the way drm and radeon
modules are loaded I think.

Using Gutsy live cd I found this workaround.

1) Go to ALT+F1 console.
2) stop gdm   $ sudo /etc/init.d/gdm stop
3) unload radeon and drm modules  $ sudo rmmod radeon  drm
4) reload drm and radeon modules in this order $ sudo modprobe drm radeon
5) start gdm again $ sudo /etc/init.d/gdm start

It works for me.

-- 
[gutsy] Regression - "Desktop effects could not be enabled" on ATI Mobility 
Radeon
https://bugs.launchpad.net/bugs/144077
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