I think that using runlevel 3 means that Ubuntu wants to run in text mode due to
your video problem. You can change to runlevel 3 and next boot it will run in
text mode, but this will not resolve your problem.

I found this thread interesting.
http://ubuntuforums.org/showthread.php?p=4758458

It shows that many people are having similar problems and it seems to be linked
to the kernel they are using. when they switched kernels, it cleared up for some
people. For example one person was running kernel 2.6.24-16-rt and it cleared up
when he switched to 2.6.24-16-generic. RT stands for real time. You will have to
re-install your drivers afterwards.

To find out what kernel you are using, type: uname -r in the terminal. I am
using the generic kernel. Now I wonder what would happen if I installed the rt
kernel. If you are already running the generic kernel then we have to look at
other possibilities.

Thanks for the all suggestions re my driver problem. The resolution
was to give remote access to someone who knew what he was doing!
Running "displayconfig-gtk" configured the xorg.conf file correctly
and all is now well.

when you go to System > Administration > Hardware Drivers, do
you see an Nvidia driver? That's what worked for me.

The open source 'nv' driver should work fine to start out with in X,
once X is running use the 'Restricted Drivers' system app to enable the
binary drivers.

I found nothing but issues running scripts to install or use the binary
drivers from the nvidia site, I recommend using the packaged version
that Ubuntu will pull down for you and install.

Have you tried this?

I had that problem with 7.10 . I fixed it by running a set up from
configure-debian which can be found in synaptic. It may help. I have different
vidio than yours. In 8.04 I had to select and set up my monitor to get the right
resolution. It defaulted to a generic.