Problem got marginally better when using kernel 2.6.30-020630-generic.
However, outputting to VGA output is still unbearable with compiz on.
Xrandr works perfectly when compiz is off.

Any hope for Karmic?

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[i855] [Intel 82852/855GM] xrandr does not output correctly to VGA output
https://bugs.launchpad.net/bugs/355761
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