Update:
I forgot to mention that in the previous image, I forced the display of my laptop to be of resolution size 1280x800 (in xorg.conf), otherwise the laptop display would automatically be resized down to 1024x768 which looks blurry and doesn't use all the real estate of the screen.

However, when I disabled the forcing of the resolution, the external display works a lot better now (because the laptop display's resolution was lowered which allows the external display to be fully used without the virtual size exceeding 2048x2048). Just a bit annoying that I'm not able to use both screens fully.
Here's an image of the new virtual display: http://img194.imageshack.us/img194/7968/snapshot2h.png

But that really doesn't explain any of what the OP is seeing :-)

Adam

Adam:
No desktop effects enabled or compiz.

oshunluvr:
After using the new 1024x768 resolution for the laptop display, the window decorations seem to be working fine.
I'll try your suggestions to improve performance.

Thanks to both of you for your help, marking this thread solved.

Adam:

I get your point (the one under your hat! ), but actually - I believe my comment does refer to the OP:

1280x800 plus 1024x768 leaves us at a total width of 2304 - a whopping 256 pixels wider than supported by the driver if DRI is enabled. Plus, I was responding to the OP's comment regarding this limitation.

anyway... I have a media computer with a 945GM and it's always given my fits to configure properly. I have it hooked to 50" plasma that has native 1366x768. A resolution which violated the old "divisible by eight" rule. Thank goodness that limitation is gone.

If the OP sets the virtual line to 2304 in their xorg.conf file, DRI will be disabled. As long as the Virtual resolution in the xorg.conf is large enough, dual monitors should work just fine, it will just disable DRI.

So, as I said, the 2048 limitation doesn't explain what the OP is seeing.

Adam