I have the same problem, with a different error message sometimes:
Failed to allocate primary surface: out of memory

I've tested the mainline daily current 2.6.24-999 kernel as suggested in
bug 521260 https://bugs.launchpad.net/ubuntu/+source/linux/+bug/521260 ,
but nvidia-current won't build on it.

As a temporary workaround, I have the nvidia-current driver mostly
working and booting without error, but I've had to change the grub
gfxpayload to 640x480. X works properly, but my VTs look terrible now
(and I spend a lot of time in VT). (Found this in post #4 by mrowth in
the forum thread above)

I'm marking this as confirmed.

** Changed in: ubuntu
       Status: New => Confirmed

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 Occasionally boots into "low graphics mode"
https://bugs.launchpad.net/bugs/562565
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