I have some additional information for this bug after discussing the issue with NVIDIA. The bug that is occurring is indeed a bug in their driver, but requires large changes that won't be happening very soon.
This bug however, is only being exposed due to a patch that is added to compiz, 030_fix_screensaver. Looking at the changelog, this patch is here for this reason:
compiz (1:0.6.2+git20071018-0ubuntu2) hardy; urgency=low
- never unredirect the gnome-screensaver window to prevent
breaking the keyboard grab (#145123)
-- Michael Vogt <email address hidden> Mon, 29 Oct 2007 12:57:25 -0400
That however, is no longer necessary since the bug that it was working around was in the X server, and fixed by git commit:
We absorbed this patch in the X server when merging from debian earlier:
xorg-server (2:1.4.1~git20080118-1) unstable; urgency=low
[ Brice Goglin ]
* Add 42_dont_break_grab_and_focus_for_window_when_redirecting.diff
to prevent password authentication bypass, closes: #449108.
[ Julien Cristau ]
* New upstream snapshot
+ includes the security fixes from the previous version
+ fixes regression introduced by the fix for CVE-2007-6429 in the MIT-SHM
extension (closes: #461410)
-- Brice Goglin <email address hidden> Fri, 18 Jan 2008 22:20:32 +0100
Once the 030_fix_screensaver patch is dropped, compiz works correctly on NVIDIA cards.