I think hitting that button changes the Xorg configuration file at 
/etc/X11/xorg.conf 
Possibly breaking something in there.
You could give this a try. It worked for me when I encountered the same 
problem. Open a terminal and type
sudo dpkg-reconfigure -phigh xserver-xorg
It'll give you some dialog about xorg related stuff, you might be able to 
fiddle with it to reconfigure the settings to get X back. Or you could mess 
about with the configuration file itself and see if that helps.

-- 
'Enable desktop effects' button kills X config (intel driver on Dell Latitude 
D505)
https://bugs.launchpad.net/bugs/107869
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