Video Playback Not Working When Windowed

Ubuntu: 8.04 LTS Hardy.
Video Card: ATI Radeon 5500 (X0150) (Bios BK-ATI VER008.01.7D.033.000)
Package: ATI Drivers (fglrx-driver) - guess????

When I have desktop appearance set to normal or high (so you get the cool transparent title bars / wobbly windows etc) video playback does not work in a window. If I full screen the video in VLC it displays fine and uses the hardware acceleration as it should.

If I have no desktop effects enable everything works fine - hardware acceleration works and I can watch videos windowed or fullscreened with out error.

Ive had a play around with the xorg file seeing if that helped but no joys. Ended up loading the EnvyNG incase of driver issue but still no joy.

I am using the Catalyst ATI 8.47.3 driver. If I uninstall the driver and run with mesa mode everything works just fine - except I have no hardware acceleration (no good for fullscreen divx / xvid).

Thanks for your help.

Copy of xorg.conf below
--------------------------------------------------------------
Section "Screen"
 Identifier "Default Screen"
 Monitor "Configured Monitor"
 Device "Configured Video Device"
 Defaultdepth 24
EndSection

Section "Device"
 Identifier "Configured Video Device"
 Driver "fglrx"
 Option "VideoOverlay" "on"
 Option "OpenGLOverlay" "off"
EndSection

Section "InputDevice"
 Identifier "Generic Keyboard"
 Driver "kbd"
 Option "XkbRules" "xorg"
 Option "XkbModel" "pc105"
 Option "XkbLayout" "us"
EndSection

Section "InputDevice"
 Identifier "Configured Mouse"
 Driver "mouse"
 Option "CorePointer"
EndSection

Section "ServerLayout"
 Identifier "Default Layout"
  screen "Default Screen"
EndSection

Section "Module"
 Load "glx"
EndSection

Section "Monitor"
 Identifier "Configured Monitor"
EndSection

Section "Extensions"
 Option "Composite" "Enable"
EndSection
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