I was also experiencing this bug on a fresh install of Karmic.
According to a suggestion in a forum post, I disabled KMS (by adding
nomodesetting to GRUB_CMDLINE_LINUX_DEFAULT in /etc/default/grub), ran
sudo update-grub, rebooted, and now things are working splendidly.  Is
KMS somehow at fault here?

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https://bugs.launchpad.net/bugs/433326
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