I just reproduced with your xorg.conf the exact same behaviour... I can not 
quite explain it either. I've tried multipe xorg.conf's now and nothing seems 
to help. The only thing that i found so far that describes the symptoms is this 
bug-entry. I just hope the debug information i send might help developers to 
try and figure out what's going wrong. 
I'm using Ubuntu Gutsy installed from the livecd... with all updates available 
installed etc. (32 bit version, 1 Gb internal memory (2x512).)

Thanx for your effort though!

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intel gm965 freezes with 3d applications
https://bugs.launchpad.net/bugs/120834
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