In that case, you're dependent on what graphics driver Ubuntu uses for your Intel card. And it seems that your card isn't supported by the driver very well - you don't even get 3D hardware acceleration. That line from lspci was fairly useless, by the way; it only tells us that you're using an Intel GPU, not the GPU model. Depending on that, it makes sense that it will or won't work, since some cards in Intel's GPU series simply have hardly any acceleration at all. It's either that, or Xephyr. Maybe Xephyr doesn't use any hardware acceleration at all. Is there any reason you're not just trying it through your regular X session?
