
It's a known nvidia bug arising out of presence of XDisplay name in the config file and as i said earlier only available solution is to uncheck "Include X Display Names in the Config File" in the 'nvidia-settings Configuration' submenu. Doing this will solve the problem but in some cases as yours user will have to manually remove XDisplay name from the variables in config file.
If someone is building or buying a new machine and planning to use Linux i would advise them to go with Intel chipsets. They might not be as powerful as nvidia or ati ones but Intel drivers are open source and give you least amount of headaches.
Coming back to nvidia in Linux a guy named Linus summed it all up when he said "nvidia f*ck you!"
Cheers!!!