Xorg starts in failsafe mode when nvidia-current is active

I have nvidia-current installed (version 295.40-0ubuntu1) and nvidia-current-updates (version 295.49-0ubuntu0.1) running on Ubuntu 12.04. These are the latest version in Ubuntu proposed, but the problem was before the update to proposed.

The problem is that after running sudo nvidia-xconfig I get a xorg.config generated as shown at the end. When I reboot the xOrg starts but in a very low resolution (failsafe mode). This happens with or without my second HDMI screen attached (which mirrors my latop screen).

I have a Dell XPS 14z, with a NVIDIA GeForce GT 520M 1GB graphics with Optimus. I don't not have ANY issues with the same card on the same computer under Windows 7. My kernel is: 3.2.0-23.36.

Any help with this would be great, I really would like my NVIDIA driver to work.

xorg.conf:

# nvidia-xconfig: X configuration file generated by nvidia-xconfig

# nvidia-xconfig:  version 295.49  (buildmeister@swio-display-x86-rhel47-07.nvidia.com)  Tue May  1 00:54:24 PDT 2012


Section "ServerLayout"
    Identifier     "Layout0"
    Screen      0  "Screen0" 0 0
    InputDevice    "Keyboard0" "CoreKeyboard"
    InputDevice    "Mouse0" "CorePointer"
EndSection


Section "Files"
EndSection

Section "InputDevice"

    # generated from default
    Identifier     "Mouse0"
    Driver         "mouse"
    Option         "Protocol" "auto"
    Option         "Device" "/dev/psaux"

    Option         "Emulate3Buttons" "no"
    Option         "ZAxisMapping" "4 5"
EndSection

Section "InputDevice"

    # generated from default
    Identifier     "Keyboard0"
    Driver         "kbd"
EndSection


Section "Monitor"
    Identifier     "Monitor0"
    VendorName     "Unknown"
    ModelName      "Unknown"
    HorizSync       28.0 - 33.0
    VertRefresh     43.0 - 72.0
    Option         "DPMS"
EndSection


Section "Device"
    Identifier     "Device0"
    Driver         "nvidia"
    VendorName     "NVIDIA Corporation"
EndSection

Section "Screen"
    Identifier     "Screen0"
    Device         "Device0"
    Monitor        "Monitor0"

    DefaultDepth    24
    SubSection     "Display"
        Depth       24
    EndSubSection
EndSection

The (EE) in /var/log/Xorg.0.log is:

[    10.014] (EE) Failed to load module "nvidia" (module does not exist, 0)