This is the rewrite_event_translate in gtkmain.c:
rewrite_events_translate (GdkWindow *old_window,
			  GdkWindow *new_window,
			  gdouble   *x,
			  gdouble   *y)
{
  gint old_origin_x, old_origin_y;
  gint new_origin_x, new_origin_y;

  gdk_window_get_origin	(old_window, &old_origin_x, &old_origin_y);
  gdk_window_get_origin	(new_window, &new_origin_x, &new_origin_y);

 
  *x += new_origin_x - old_origin_x;
  *y += new_origin_y - old_origin_y;
}

As I understand, this will translate the (x,y) relative to old window to
(x,y) relative to new window.
Firstly, we can caculate the (x,y) relative to the origin point by:
*x += old_origin_x;
*y += old_origin_y;
Then, we can caculate the (x,y) relative to the new window by:
*x -= new_origin_x;
*y -= new_origin_y;
So, we should have:
  *x -= new_origin_x - old_origin_x;
  *y -= new_origin_y - old_origin_y;

You can reproduce the error by:
1. create two GtkWindow (window A and B)in the same application and add
them to diffrent GtkWindowGroups.
2. gdk_pointer_grab one of the GtkWindow (window A), with owner_even=TRUE
and mask=GDK_POINTER_MOTION_MASK.
3. print out the event->x and event->y or log them to a file when the
motion_notify_event is triggered.
4. run the application. move mouse pointer to window B (which is not grabed
and is not in the same group as A).

result we expect: the value of event->x and event->y which are relative to
window A is right.
in fact we got: wrong (x,y).