Conversation with Compiz developers on #compiz-fusion-dev confirming this is an issue with the latest release:

<IntuitiveNipple> With the Ubuntu Jaunty (1:0.7.9+git20090211-0ubuntu4) package, using two X screens of different dimensions, there is an out-of-bounds (black) region on the 2nd screen where desktop and windows can't go, but the mouse can. Is this known? I'm not finding anything in the bug-tracker.
<IntuitiveNipple> I'm just about to try latest git head just-in-case
<smspillaz> two X screens or two X outputs?
<smspillaz> screen != output
<IntuitiveNipple> two X screens (:0.0 and :0.1)
<smspillaz> I don't think we support two X screens of different dimentions
<smspillaz> start one compiz instance per screen with --only-current-screen
<crdlb> srsly? ouch
<IntuitiveNipple> It worked fine with previous versions... this appears as a regression when updating to Jaunty, at least.
<crdlb> don't try latest git head, btw
<smspillaz> We do support two _outputs_ of different dimentions
<smspillaz> crdlb++
<crdlb> depending on which one you use, you'll either get exactly the same thing you have
<crdlb> or a completely broken compiz
<smspillaz> IntuitiveNipple: nevertheless, you won't find much love in the current git head
<IntuitiveNipple> There's photo's attached to the Ubuntu bug report if it'd help: https://bugs.edge.launchpad.net/ubuntu/+source/compiz/+bug/331918
<smspillaz> IntuitiveNipple: we've dropped multi-screen support completely ;-)
<IntuitiveNipple> smspillaz: That's a shame
<smspillaz> multi-screen was an X hack
<crdlb> lol, don't phrase it that way
<crdlb> IntuitiveNipple: it'll just always use --only-current-screen, essentially
<smspillaz> If you want multi-screen, start one compiz instance per screen
<crdlb> "an X hack"?
<smspillaz> pretty much
<IntuitiveNipple> smspillaz: So, that suggests the Ubuntu start-up scripts will need to change then
<crdlb> there's nothing hacky about it, it's just lots of work with very little testing
<smspillaz> it's been mostly superseeded by xrandr 1.2, twinview, xinerama etc
<crdlb> IntuitiveNipple: that's not in 0.8
<crdlb> oh ...
<crdlb> except for the whole using two GPUs part ...
<smspillaz> IntuitiveNipple: multi-screen support is still in 0.8 but it is probably broken, that is because no developers actually can be bothered to test it because it is such a pain to set up
<IntuitiveNipple> So, should I open a bug for this?
<smspillaz> you can, but I don't think it will be fixed unless someone sits down and does the work to set up multi-screen ;-)
<smspillaz> IntuitiveNipple: you can use --only-current-screen now though (and have two compiz instances)
<crdlb> if it worked in 0.7.8, it might be a simple regression that could be fixed in a future 0.8 release
<smspillaz> it works better that way
<IntuitiveNipple> smspillaz: Is that going to confuse GDM ? I notice CCSM offers to configure both screens as before... was hoping there was going to be a relatively simple tweak there :)
<smspillaz> what does gdm have to do with ccsm?
<smspillaz> ok, so they both use gtk ;-)
<IntuitiveNipple> nothing... it's called a sentence; joins unrelated by correlating statements :D
<smspillaz> IntuitiveNipple: anyways, you should change your startup scripts to have compiz start --only-current-screen on each screen
<IntuitiveNipple> and I can't type! s/by/but/ :)
<smspillaz> it shouldn't confuse gdm that much
<IntuitiveNipple> smspillaz: OK, I'll have a go at that. Compiz isn't my forte, I'm at the kernel end of things.
<smspillaz> I don't know what it would confuse gdm at all tbh
<smspillaz> ;-)
<smspillaz> yay kernel
<IntuitiveNipple> so something like: DISPLAY=:0.0 compiz --only-current-screen; DISPLAY=:0.1 compiz --only-current-screen 
<smspillaz> we have a secret world takeover plan regarding the kernel, but I guess we can discuss that later ;-)
<crdlb> compiz --replace --only-current-screen should work on ubuntu
<IntuitiveNipple> ?
<smspillaz> IntuitiveNipple: yeah that should be right