I don't use gdm, and hit this bug. I was able to make the dialog go away by 
moving these files out of /etc/init:
gdm.conf failsafe-x.conf plymouth* usplash.conf
I'm sure I didn't need to eliminate all of those, but just failsafe-x.conf 
alone didn't do it so I cast a wider net.

-- 
Since failsafe-x was enabled in karmic it starts if gdm is disabled and kdm is 
used. (low graphics mode error)
https://bugs.launchpad.net/bugs/491483
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