This turned out not to be a problem of the NVidia driver.
I donot know why, but the "lockup" I described in my post occurs because I was trying to do "startx" from runlevel 3 as root. This has always worked for me, but it doesn't seem to work anymore after I allowed a fresh install of Red Hat 9 to upgrade to all the latest RPM's.
What DOES work however is to do "startx" as a normal user, or, go to runlevel 5. X works absolutely fine then; at runlevel 5 I can even log in as root. Why I cannot just startx as root from runlevel 3 anymore (it works during the initial install) is beyond me...
Thanks a lot for all the help though; I should have investigated this further before posting, sorry