I had this same problem using Xfce as my desktop environment in another distro: 
BLAG, which is based on Fedora (versions 6 and 7).
My graphical card is also an S3 and I solved the issue in the way Jim Campbell 
indicated above.
Thanks Jim  ;-)

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i810 + xorg = xfce crashes when opening terminal
https://bugs.launchpad.net/bugs/91849
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