I was having the same problem- install drivers (both using the terminal commands as mentioned here:
http://wiki.linuxmce.org/index.php/Display_Drivers#Chipset_driver and also using envy as mentioned here:
http://forum.linuxmce.org/index.php?topic=3368.0).
After replacing the 'vesa' with 'nvidia' in /etc/X11/xorg.conf and restarting, I continued to get the "failed to start....".
I reinstalled several times, and kept getting the same errors. This last time, however, I configured it using UI1 and left it on overnight. When I came back to it the next morning, there was a message stating that there were updates that needed to be downloaded/installed. Following the updates, I again ran AVWizard (by clicking on "Video Res and Audio Setup" after clicking "More" then "Advanced" from the UI1 screen). I [ctrl]+[alt]+[backspaced] and ran "nano /etc/X11/xorg.conf". Replacing "vesa" with "nvidia" and rebooting has UI2 with transparency working....
Long winded way of saying that I let lmce download the updates and that made the difference (fluke?).
Should add: Svideo still not working, but tv flashes after selecting that option in the AVWizard.
Acer T180
AMD X2 4000+
3 GB DDR2
Integrated Geforce 6100 (but no composite, component, hdmi out, so I disabled it in the BIOS)
GeForce XFX 8500GT PCI-e
250 GB SATA