I've been doing some research, and came upon this topic. I have a Mac Pro 8-core (early 2008) with OS 10.6.2 that I was successfully using with an external LCD monitor via DVI. One day, I booted, and it no longer recognized the monitor, and the display settings no longer had extended desktop options. Tried resetting PRAM, but no go, so I started troubleshooting.
First thing I did was connect my main display to DVI #2 to see if there was a problem with the port, but it booted as if DVI #2 was the main display with no problems, but the second monitor, now on DVI #1, still did not get recognized.
Next thing I did was hook the second monitor to my MacBook Pro (mid 2009 w/ OS 10.6.2) via the minidisplay to DVI cable. The monitor worked fine as an extended desktop.
So, it seems both DVI outputs work fine and the monitor DVI input works fine, but the Mac Pro simply isn't recognizing the monitor. This seems very much like a software issue. Next step will be to use a DVI>VGA adapter (the monitor has both VGA and DVI inputs), I have a feeling it will work. Not sure though if it will somehow reset something so that switching back to DVI will also work.
It's really strange issue, as many people have issues with loss of the second monitor, but it can't be pinned down to a certain situation (as I mentioned, my MacBook Pro w/ OS 10.6.2 works just fine via minidisplay to DVI.