Also affecting me. The following points may be of interest:

1. Graphics: NVIDIA GeForce G210M with 512MB DDR Dedicated Memory.
2. Machine: Lenovo G550 NTDF3UK (Laptop)
3. Previously I upgraded (on the standard driver) from 11.10 to 12.04 and this 
issue did not occur.
4. I erased and reinstalled my entire OS (for fun) and then the issue started. 
I have tried with the default driver and also with the proprietary driver in 
'Additional Drivers' and both exhibit the same issue.
5. If I keep rebooting my machine it eventually recovers and logs me into the 
desktop. Sometime it logs me in first time, other times it takes around2-3 
reboots and then it is fine again until the next time.
6. I've attached my output from SysInfo in case anything in there is of 
interest (GM_SysInfo).

Does anyone know a timeline for this fix because this is really spoiling
what is an excellent Ubuntu release and it is incredibly tedious to keep
rebooting to get to a desktop (I don't know of a 'smarter' way to start
the desktop (running startx from within low graphics mode does not
invoke the launcher or the panel).

** Attachment added: "GM_SysInfo"
   
https://bugs.launchpad.net/ubuntu/+source/jockey/+bug/912381/+attachment/3126050/+files/GM_SysInfo

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https://bugs.launchpad.net/bugs/912381

Title:
  Error "ubuntu is running in low-graphics mode" directly after
  installation

Status in “jockey” package in Ubuntu:
  Confirmed

Bug description:
  I installed Ubuntu 12.04 Desktop on my Dell XPS 1330 (Nvidia 8400M
  GS). The Live CD session works great and installation was no problem.
  But after the first reboot I get the error message: "ubuntu is running
  in low-graphics mode".

  On the terminal I tried to install manually:
  nvidia-173 nvidia-173-updates
  or
  nvidia-current nvidia-current-updates

  But non of the two packages resolves my problem. So i tried to install the 
nvidia driver with "jockey-text".
  $ jockey-text -c
  $ jockey-text -u
  $ jockey-text -a
  $ jockey-text -C
  Additional Drivers
  Downloading and installing driver...

  Sorry, installation of this driver failed.

  Please have a look at the log file for details: /var/log/jockey.log
  $

  
  For me it's not important to install the proprietary Nvidia driver. I just 
would like to use the system. If possible with the nouveau or with the nvidia 
driver

  ProblemType: Bug
  DistroRelease: Ubuntu 12.04
  Package: jockey-common 0.9.6-0ubuntu1
  ProcVersionSignature: Ubuntu 3.2.0-7.13-generic-pae 3.2.0-rc7
  Uname: Linux 3.2.0-7-generic-pae i686
  ApportVersion: 1.90-0ubuntu1
  Architecture: i386
  Date: Thu Jan  5 17:40:03 2012
  InstallationMedia: Ubuntu 12.04 LTS "Precise Pangolin" - Alpha i386 (20120102)
  MachineType: Dell Inc. XPS M1330
  PackageArchitecture: all
  ProcEnviron:
   LANG=en_US.UTF-8
   SHELL=/bin/bash
  ProcKernelCmdLine: BOOT_IMAGE=/boot/vmlinuz-3.2.0-7-generic-pae 
root=UUID=0f231cf4-6534-4206-ba52-15bb6c561663 ro quiet splash vt.handoff=7
  SourcePackage: jockey
  UpgradeStatus: No upgrade log present (probably fresh install)
  dmi.bios.date: 12/26/2008
  dmi.bios.vendor: Dell Inc.
  dmi.bios.version: A15
  dmi.board.vendor: Dell Inc.
  dmi.chassis.type: 8
  dmi.chassis.vendor: Dell Inc.
  dmi.modalias: 
dmi:bvnDellInc.:bvrA15:bd12/26/2008:svnDellInc.:pnXPSM1330:pvr:rvnDellInc.:rn:rvr:cvnDellInc.:ct8:cvr:
  dmi.product.name: XPS M1330
  dmi.sys.vendor: Dell Inc.

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