For what it's worth. I've never been too happy with Xorg memory utilization so 
today I tried the following:
1. Uninstalled Ubuntu's proprietary ATI drivers from System -> Administration 
-> Hardware Drivers.
2. Reboot.
3. Download and install ATI drivers from their website. 
http://support.amd.com/us/gpudownload/linux/Pages/radeon_linux.aspx?type=2.4.2&product=2.4.2.3.25&lang=English
4. Reboot.

Now I'm using latest ATI and memory usage of Xorg seems a lot better.

Note: If xserver has to be updated with the nobackfill fix before
installing the drivers, if done after X won't start and drivers will
have to be removed and reinstalled.

-- 
[Lucid][Ubuntu 10.04][ATI cards] Slow/freeze windows management (resize, 
maximise, .etc) with fglrx driver + compositing desktop.
https://bugs.launchpad.net/bugs/568988
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