I normally have dual monitors connected to my computer using AMD's equivalent of TwinVeiw. Unfortunately I sometimes have to run my computer with only one monitor attached. When I do this plasma-desktop displays the wallpaper and stuff from the secondary desktop over top of the windows and the primary desktop. The Resolution and Rotation part of systemsettings shows the single monitor properly, so I would think plasma-desktop would also be able to figure out that the 2nd desktop is unneeded.

I am running a fully updated ArchLinux install with the Catalyst display drivers. I tried generating a new xorg.conf but this didn't solve the problem.

Which version of KDE do you have installed? KDE 4.7.0?

yes, it is 4.7.0

If you try under a new user, does it have any effect? KDE 4.7 is supposed to include some fixes for multiscreen support (with more coming in 4.