Switching to metacity before connecting the second monitor works for me.
Interestingly, I can enable compiz with the second monitor connected,
the output produced by it is as follows:
Checking for Xgl: not present.
xset q doesn't reveal the location of the log file. Using fallback
/var/log/Xorg.
I am affected by this bug, too, and it definitely needs to be fixed. I
can't believe that this bug got into the release, especially since it
was reported 6 weeks ago. If you need any more information or testers of
fixes, please tell me how I can help.
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[i945gm] [karmic] X servers hangs when set
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