I've installed Ubuntu 10.10 i386 on an old laptop (Compaz Evo N1015V: 1.2GHz CPU, 256M RAM!). When attempting to log into Desktop Edition, nothing is drawn apart from the mouse pointer - the background remains as with GDM, the panel/nautilus do not appear, keyboard shortcuts (Alt+F2 for example) do not work, etc. "Safe mode", however, works fine.
I managed to solve this problem by removing compiz, which was a bit of a brute-force solution but did the job for this machine.
So one thing that is different between safe mode and normal: compiz isn't started.
But what else? I can't find any documentation about "safe mode" anywhere. What else does it do differently?
Safe mode is supposed to load only the default video driver (VESA/FB) in order to bypass any vga-related problems.
In your case, your video driver couldn't probably work with Compiz, so you could either go to 'safe mode' (and just load the plain video driver with no support for Compiz) or uninstall the package.