I found out that this problem is the same as reported in the forum:

http://ubuntuforums.org/showthread.php?p=6301778

However, the suggested solution (sudo aticonfig --auto-powerstates=off)
didn't work for me. Instead, the following:

sudo aticonfig --acpi-services=off

does the trick.
Guess it is really an FGLRX issue.

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X server hangs at boot time when running on battery power
https://bugs.launchpad.net/bugs/312735
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