After running an update of Ubuntu 7.10 to Ubuntu 8.04 LTS, I now have desktop effects!
The new ATI driver in the Ubuntu 8.04 (codename Hardy Heron) works with my ATI Radeon XPress 200M graphics card. I upgraded without installing any updates or drivers though the “restricted drivers. The upgrade went smoothly, and all I had to do was remove bittorrent. No problems here, and even my wireless works!