Re: KDE 4.3, Nvidia and "insufficient resources"
As you suggested, when compositing is enabled, Xv video windows need to be placed in video RAM, and when all of that memory is taken up by other windows, it fails with a BadAlloc error. On pre-GeForce 8 GPUs, the amount of video memory available for composited windows is limited to 256 MB. In addition, I don't think the GeForce 7950 supports TurboCache, which would have allowed it to use system memory instead of video memory. It does sound like you're just completely out of memory that the GPU can access directly.
Does the problem occur as quickly if you use Compiz instead of KDE's compositor?