Forwarding this bug from a Ubuntu reporter:
https://bugs.edge.launchpad.net/ubuntu/+source/xserver-xorg-video-intel/+bug/351756

[Problem]
With an external monitor connected and UXA enabled, if an 'Option Virtual' is specified with a width > 2048, X fails to start, along with an error message "Cannot support DRI with frame buffer width > 2048".

[Discussion]
The issue is seen with both 2.x.6 and 2.7.x (2:2.7.0-1ubuntu1~xup~1 was tested)

One additional piece of information relating to this bug is that dual-screen works if I stack the monitors on top of each other when setting their relative positions.

For example, see this screenshot:
http://dl.getdropbox.com/u/256410/photos/intel_xorg_working_config.png

For some reason, this way of positioning the monitors does not ask to set a virtual resolution in my xorg.conf, and therefore it works.

When I set the positions of the monitors as in the following screenshot:
http://dl.getdropbox.com/u/256410/photos/intel_xorg_notworking_config.png

Then it asks to change the virtual resolution, tells me to restart X, and upon restarting it crashes ( http://dl.getdropbox.com/u/256410/IMG_0479.JPG )

Architecture: i386
DistroRelease: Ubuntu 9.04
Package: xserver-xorg-core 2:1.6.0-0ubuntu6
ProcCmdline: /usr/X11R6/bin/X :0 -br -audit 0 -auth /var/lib/gdm/:0.Xauth -nolisten tcp vt7
ProcVersion: Linux version 2.6.28-11-generic (buildd@palmer) (gcc version 4.3.3 (Ubuntu 4.3.3-5ubuntu4) ) #38-Ubuntu SMP Fri Mar 27 09:00:52 UTC 2009
SourcePackage: xorg-server
Uname: Linux 2.6.28-11-generic i686

[lspci]
00:00.0 Host bridge [0600]: Intel Corporation Mobile 945GM/PM/GMS, 943/940GML and 945GT Express Memory Controller Hub [8086:27a0] (rev 03)
     Subsystem: Dell Device [1028:01d8]
00:02.0 VGA compatible controller [0300]: Intel Corporation Mobile 945GM/GMS, 943/940GML Express Integrated Graphics Controller [8086:27a2] (rev 03)
     Subsystem: Dell Device [1028:01d8]

[Backtrace]
Thread 1 (process 18853):
#0  0xb78e3309 in drm_intel_bo_reference () from /usr/lib/libdrm_intel.so.1
#1  0xb794588b in i830_set_pixmap_bo (pixmap=0x8465190, bo=0x0)
    at ../../src/i830_exa.c:772
	old_bo = <value optimized out>
#2  0xb7920ab8 in i830_xf86crtc_resize (scrn=0x83efef0, width=1152, 
    height=864) at ../../src/i830_driver.c:1178
	new_front = <value optimized out>
	old_front = (i830_memory *) 0x843e810
	mem_box = {x1 = 0, y1 = 0, x2 = 2048, y2 = 864}
	screen = (ScreenPtr) 0x843e350
	old_x = 3120
	old_y = 1050
	old_width = 4096
#3  0x080f7bb4 in xf86RandR12ScreenSetSize (pScreen=0x843e350, width=1152, 
    height=864, mmWidth=303, mmHeight=190)
    at ../../../../hw/xfree86/modes/xf86RandR12.c:703
	randrp = (XF86RandRInfoPtr) 0x8448418
	pScrn = (ScrnInfoPtr) 0x83efef0
	config = (xf86CrtcConfigPtr) 0x83f2a50
	pRoot = (WindowPtr) 0x0
	pScrnPix = (PixmapPtr) 0x8465190
	ret = 0
	c = <value optimized out>
#4  0x080f8240 in xf86RandR12CreateScreenResources (pScreen=0x843e350)
    at ../../../../hw/xfree86/modes/xf86RandR12.c:843
	pScrn = (ScrnInfoPtr) 0x83efef0
	c = <value optimized out>
	width = 0
	height = <value optimized out>
	mmWidth = 303
	mmHeight = 190
#5  0x080ee55e in xf86CrtcCreateScreenResources (screen=0x843e350)
    at ../../../../hw/xfree86/modes/xf86Crtc.c:701
No locals.
#6  0x08072171 in main (argc=10, argv=0xbf8916c4, envp=0x0)
    at ../../dix/main.c:325
	pScreen = (ScreenPtr) 0x843e350
	i = 0
	alwaysCheckForInput = {0, 1}