http://combatwombat.7doves.com/index.php/2007/10/31/gutsy_effort_in_new_ati_driver
The above page talks about what to do.
Xgl server setup changed
The Xgl server will now be started automatically next time you login. It is no longer necessary to use any special X session to start Xgl, and such sessions will likely fail to work properly. Please select a regular session from your session manager next time you log in. To disable Xgl autostart for this user, create a file named ~/.config/xserver-xgl/disable
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