Ever since the most recent upgrade to Ubuntu (9.04) my conky installation just has not been happy. I am guessing it is something to do with the fancy desktop effects provided by Compiz, and until there is a fix, you kinda have to implement a hack.
First, the only way to ensure that conky doesn’t overlay ALL your windows, is to use these settings in your .conkyrc:
# Create own window instead of using desktop (required in nautilus)
# If own_window is yes, you may use type normal, desktop or override
Then, you need to create a little script that you run each time you boot up your computer. The script has to say:
Run this script after the computer has booted up, and conky behaves nicely, and stays on the desktop as it is meant to.
If anyone has a better solution than this then give me a shout, but this is the only way I have found of getting conky to not sit on top of everything else, not blank out all icon on the desktop, or not completley dissapear