The following comment in bug 383345 seems to sum up the root cause of
this issue.  Though, why it worked in Jaunty and not in Karmic, I don't
know.  No bling for me!

> Please, before setting dual screen, disable desktop effects (compiz).
> Compiz cannot work at resolution higher than 2048x2048 (yet) on
> i915/945 hardware, limitation of HW 2048x2048 max texture size.
> Without Desktop effects your dual screen configuration should work.
> (it is then limited to 4096x4096 framebuffer size.)
> With Desktop effects and resolution 1024+1024, you probably 
> will experience this BUG.

https://bugs.launchpad.net/ubuntu/+source/xserver-xorg-video-
intel/+bug/383345/comments/62

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[i945gm] [karmic] X servers hangs when settings up dual monitor config
https://bugs.launchpad.net/bugs/438000
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