So today everything seemed to just work like a charm. I awoke my Debian system from its weekend standby and ran an aptitude update. Now, it's been awhile since I've been working on this machine, so there was quite a few updates available. Over 170MB of updates were found, downloaded and installed.
So now that my headless Windows install is working I decided to tackle the issues of running the fglrx proprietary driver from ATI on the 2.6.29 kernel again. This time I followed this guide from debian.org and combined with the recent aptitude updates everything looked good! The kernel modules were compiled and installed without any issues..
X started up, a mouse pointer appeared and fgl_glxgears reports framerates of over 1000 fps! Although I thought I was maybe chancing my luck, this success led me to try and get compiz working. I executed compiz --replace and amazingly.. it worked without a hitch!
The only issue I encountered was that my desktop cube wasn't a cube at all! Instead it was more like a flat panel with two desktops. I managed to fix this via the compiz configuration manager "general" option, changing the "horizontal virtual size" from 2 to 4:
After that, a little configuring of the background on my cube and at last.. I'm in an environment I'm comfortable to work in. Here's a few screen shots, notice the Windows taskbar from the headless virtualized copy of Windows XP: