I've had, perhaps a similar issue, thought I would chime in on what I did that seems to have worked. BTW, I'm using a wireless Logitech trackball on Ubuntu 10.04.
My issue was that the left button on my Logitech wireless trackball mouse would give me lots of problems. Sometimes it would be severe, sometimes barely noticeable. Clicking would sometimes register as a left click, sometimes register as a double click, and many, many times it would fail to register at all. Dragging and dropping and copy and paste became almost impossible. I could almost never manage to highlight text. In short, life with this mouse became unbearable. This problem affected all programs and windows.
I assumed the problem was with the mouse, even though I've only had it since June or July this year (2010). I focused my efforts on trying to fix the mouse. In the end, I essentially gimped up this mouse trying to make it work, but to no avail.
Finally, I stopped using the mouse completely, and switched to a wired trackball that had never previously given me any problems before. However, after using the wired mouse for a few days, I started to notice that it was having the exact same problem. So, then I realized that in all likelihood, this is a problem with 10.04.
After looking around online for some time trying to come across a solution that worked for me, I stumbled across the post above about using metacity --replace. So, based on that, I was pretty certain that Compiz was the root of my mouse issues. After playing around with Ubuntu Tweak, one of the menu options, "Enable Metacity's compositing feature", mentioned that I had to manually disable visual effects in appearance.
So, after disabling Visual Effects (System>Preferences>Appearance>Visual Effects then select None), the mouse is suddenly working again. I don't know if this will be a permanent solution or if it will start giving me problems again, but I thought I'd mention this solution.