Well, here is an interesting update. I have desktop effects (3D) running
good so far. I am still trying to figure out what is causing the crash
though.

Here is what I did to fix it:

Run synaptic package manager.
Search for (without quotes)    "   xserver   "
Now, scroll down the list until you find " xserver-xorg-video-all "
Mark this for removal.
Now, scroll down to  "  xserver-xorg-video-ati   "
Mark this for removal.
Click on Apply.
Restart.

Now, it will probably give some errors but just ignore it, it will go to
a  default driver and be very choppy.

Okay, now that you have logged into the huge display.
Run Synaptic package manager AGAIN.
Search for (without quotes)    "   xserver   "
Now scroll down to  "  xserver-xorg-video-ati   "
Mark this for re-installation.
Click on Apply.
Restart.

Now, you will have your desktop back to normal. Now try 3D effects.
Please message back on other errors so I can figure the problem out
further. Or hopefully it will work for you. It might be an ati driver
being overwritten.

-- 
[gutsy] Regression - "Desktop effects could not be enabled" on ATI Mobility 
Radeon
https://bugs.launchpad.net/bugs/144077
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Bugs, which is the bug contact for Ubuntu.

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