After looking at your xorg.log, I see yours include:
(II) intel(0): Output VGA connected
(II) intel(0): Output LVDS connected

So I assume you have an external monitor attached to this laptop of
yours. Can you please try to disconnect that monitor and then boot from
the jaunty final live CD?

I'm attaching xorg.log from my 965 machine in case anyone wants to look
at a diff between the two.

** Attachment added: "here is xorg.log from a working 965 on a completely 
different machine"
   http://launchpadlibrarian.net/25970415/xorg_log_for_965_jaunty_final.txt

-- 
[gm965] kubuntu live cd doesn't start xorg
https://bugs.launchpad.net/bugs/363467
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