Comment 9 for bug 162625

I don't know if this will fix this specific issue, but I've backported a bunch of high importance patches that upstream recommended, that fix problems sort of like this one, so I think it would be worth the time to test. It includes a fix for "color banding issues" which sounds vaguely similar to this problem. Anyway, please try this .deb and report what you find:

http://people.ubuntu.com/~bryce/Testing/ati/

If we can determine that the patches in this deb fix this bug, they may be candidates for backporting to Hardy.