After several hours compiling and waiting for a chance to restart X, finally I got X.org 6.8 running with drop shadow and transparency. These are what I did to achieve that under Gentoo Linux.
1. Unmask X.org with these lines under /etc/portage/package.keywords:
=x11-misc/ttmkfdir-3.0.9-r2 ~x86 =x11-base/xorg-x11-6.8.0 ~x86
2. Install X.org at least with these (new) USE flags: dmx xprint
3. Edit your config file (/etc/X11/xorg.conf), and add the following lines:
Section "Extensions" Option "Composite" "Enable" Option "RENDER" "Enable" EndSection
4. Also add
Option "RenderAccel" "on" on your Device section, mine is like this:
Section "Device" Identifier "NVIDIA GeForce4 Ti 4200 (AOpen)" Driver "nvidia" Option "DPMS" "on" Option "RenderAccel" "on" EndSection
5. Emerge both xcompmgr and transset, both are ~x86 masked, I took the easy way by emerging the ebuild files.
6. Run `xcompmgr -c` to enable drop shadow. I just put symlink to it under `~/.kde3.3/Autostart`.
7. You can make a window transparent by executing `transset`, and then clicking on the window you want to make transparent.
Thank to all the folks that posted various information at [Gentoo Forums](http://forums.gentoo.org/viewtopic.php?t=209039).