This also happens to me. In fact, the Desktop Effects settings seems to
be forgotten as soon as it is set (going back to System | Preferences |
Appearance | Desktop Effects always shows "No effects" selected even
while Desktop Effects are indeed enabled and working).

Additionally, any time I re-enable Desktop Effects, I receive an error
popup with the message "nvidia hardware not available". The message is
odd, but correct (I have an ATI card). When I dismiss this message,
Desktop Effects get enabled and work smoothly until next reboot (or gdm
restart). As I said above, if I close and reopen the System |
Preferences | Appearance | Desktop Effects dialog, it again shows "No
effects" selected", even though Desktop Effects are still on.

After installing CompizConfig Settings Manager, I found that it didn't
help with the problem, but the preferences I set through this
application are retained when I re-enable Desktop Effects.

I upgraded from Feisty manually, because I had the "Current release non
found in meta-release file" problem with update-manager -d

-- 
Desktop effects enabling doesn't work after reboot
https://bugs.launchpad.net/bugs/127117
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