Samuel, Xephyr does work for me. However, after creating a new login, the 
window is automatically resized (by gdm, I assume) to be 1600x1200 which is 
unworkable on my 1280x1024 screen. Workaround for this problem is to disable 
RANDR. I'll open another bug for that, once I have more time diagnose.
Workaround is to add the following to /etc/gdm/gdm.conf-custom

[daemon]
Xnest=/usr/bin/Xephyr -screen 1024x768 -extension RANDR

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gdmflexiserver or 'new login in a window' doesn't refresh screen
https://bugs.launchpad.net/bugs/173837
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