Bumblebee stopped working on my system after upgrading to stable version of Ubuntu 14.04.

DUring installation I get this error rmmod: ERROR: Module nouveau is in use

Setting up bumblebee (3.2.1-90~trustyppa1) ...
Selecting 01:00:0 as discrete nvidia card. If this is incorrect,
edit the BusID line in /etc/bumblebee/xorg.conf.nouveau .
bumblebeed start/running, process 11133
Processing triggers for initramfs-tools (0.103ubuntu4.1) ...
update-initramfs: Generating /boot/initrd.img-3.14.1-031401-generic
Setting up bumblebee-nvidia (3.2.1-90~trustyppa1) ...
Selecting 01:00:0 as discrete nvidia card. If this is incorrect,
edit the BusID line in /etc/bumblebee/xorg.conf.nvidia
rmmod: ERROR: Module nouveau is in use
bumblebeed start/running, process 18284

It says nouveau is in use. I checked the loaded modules

 lsmod | grep nouveau
nouveau              1097199  1 
mxm_wmi                13021  1 nouveau
ttm                    85115  1 nouveau
i2c_algo_bit           13413  2 i915,nouveau
drm_kms_helper         52758  2 i915,nouveau
drm                   302817  7 ttm,i915,drm_kms_helper,nouveau
wmi                    19177  3 dell_wmi,mxm_wmi,nouveau
video                  19476  2 i915,nouveau

However, I have nouveau in my blacklist

cat /etc/modprobe.d/blacklist.conf | grep nouveau
blacklist nouveau
blacklist lbm-nouveau
alias nouveau off
alias lbm-nouveau off

My grub is also set to nomodeset

cat /etc/default/grub  | grep nomodeset
GRUB_CMDLINE_LINUX_DEFAULT="nomodeset quiet splash"

My graphics card is nvidia optimus

lspci | grep -i vga
00:02.0 VGA compatible controller: Intel Corporation Core Processor Integrated Graphics Controller (rev 18)
01:00.0 VGA compatible controller: NVIDIA Corporation GT218M [GeForce 310M] (rev ff)

I've raised a bug in launchpad: https://bugs.launchpad.net/ubuntu/+source/linux/+bug/1327598

Note: Nvidia-prime is working for me (partially). Frequent mouse locks. Interestingly, bumblebee works perfectly fine on my fedora 20 partition on this same laptop.