It kind of sounds like this bug, but the difference is...

When I enable this and dismiss the error, I still do not have desktop
effects enabled.  The other bug reported that if the dialog box was
dismissed, the effects would be enabled anyway.  This is not the case on
my machine.  I cannot get the effects to work at all and the ATI
restricted driver is installed and running.

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[Gutsy Tribe 4] Tried to enable highest degree of desktop effects, but box pops 
up telling me I don't have nvidia
https://bugs.launchpad.net/bugs/131984
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