Forgot, I'm running 10.10 on x86_64 quad core.
I followed the suggestion in bug 545521 and removed everything under 
~/.gconf/apps/panel/general and ~/.gconf/apps/panel/toplevels, rebooted and 
then everything worked (but all customization was lost of course).
Attaching the removed files in case they are of any interest.


** Attachment added: "gnome-panel.tar.bz2"
   
https://bugs.launchpad.net/ubuntu/+source/gnome-panel/+bug/479826/+attachment/3305019/+files/gnome-panel.tar.bz2

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https://bugs.launchpad.net/bugs/479826

Title:
  gnome-panel consuming 100% of CPU and driving up memory

Status in “gnome-panel” package in Ubuntu:
  Confirmed

Bug description:
  Binary package hint: gnome-panel

  After rebooting today gnome-panel is consuming 100% of my CPU and
  slowly driving memory up to 100% also.

  I had installed the latest updates just before rebooting.

  I have tried tried killing the process but it just starts again immediately 
at 100% CPU.
  I have tried restarting again but just to the same results.

  ProblemType: Bug
  Architecture: i386
  Date: Tue Nov 10 07:28:02 2009
  DistroRelease: Ubuntu 9.10
  ExecutablePath: /usr/bin/gnome-panel
  Package: gnome-panel 1:2.28.0-0ubuntu6
  ProcEnviron:
   PATH=(custom, user)
   LANG=en_GB.UTF-8
   SHELL=/bin/bash
  ProcVersionSignature: Ubuntu 2.6.31-14.48-generic
  SourcePackage: gnome-panel
  Uname: Linux 2.6.31-14-generic i686
  XsessionErrors:
   (gnome-settings-daemon:5199): GLib-CRITICAL **: g_propagate_error: assertion 
`src != NULL' failed
   (gnome-settings-daemon:5199): GLib-CRITICAL **: g_propagate_error: assertion 
`src != NULL' failed
   (polkit-gnome-authentication-agent-1:5460): GLib-CRITICAL **: 
g_once_init_leave: assertion `initialization_value != 0' failed
   (nautilus:5409): Eel-CRITICAL **: eel_preferences_get_boolean: assertion 
`preferences_is_initialized ()' failed
   (gnome-panel:5348): Gtk-WARNING **: gtk_widget_size_allocate(): attempt to 
allocate widget with width -21 and height 24

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