Got the exact same problem here:
Asus A7N266VM Motherboard with GEForce2 MX Integrated Graphics
Ubuntu 7.10 Fiesty fresh installation (open-source drivers)
Ubuntu Restricted Drivers Manager won't enable the Nvidia drivers
Therefore, installed Envy 0.9.3
to automate installation of drivers.
Restart the PC. When gdm starts the login screen is only partially complete (the top half still has the nVidia splash screen showing).
Once the desktop loads, firstly noticed the mouse cursor is garbage (just random bits or artifacts). Working with windows in any application drawing the screen is slooooooow, elements of windows are not painted to screen, moving windows leaves artifacts behind, window updates don't occur.
The previous reports by MartinE match precisely what is happening here.