Upon upgrading to 2.6.32-21 I rebooted to that wonderus "Ubuntu is running in low graphics mode" message I have seen oh so many times before. I load up the system in 800x600 resolution and and try to reinstall the nVidia drivers from the hardware drivers menu - only to see nothing was offered. Not a problem, I download the .run file from nVidia and attempt to install it. Installer fails with a kernel module error. After having a thread go nowhere on the Ubuntu boards for a couple of days I was able to work out the solution on my own. The issue seems to come from a combination of the new open source nVidia driver 10.04 is using by default and the kernel change I recently went through. The following is what worked for me:
Go download the nVidia drivers for your system and install the packages build-essential and linux-headers-`uname -r`
Drop down to a terminal login and kill your X server
Install your nVidia driver, but when you run the install add the launch argument -k $(uname -r) Example: sudo sh NVIDIA*.run -k $(uname -r)
We need to blacklist the FOSS nouveau driver, run sudo nano /etc/modprobe.d/blacklist.conf and add blacklist nouveau to any point in the file.
Reboot the system and you should be good to go! Enjoy.