This is not a XBMC bug; XBMC requires full 3D OpenGL 1.4 with GLSL and
ARB support, the open source radeon driver does simply not support that
yet.

Read:
http://xbmc.org/wiki/?title=XBMC_for_Linux_specific_FAQ#XBMC_for_Linux_minimum_requirements
and:
http://xbmc.org/wiki/?title=XBMC_for_Linux_specific_FAQ#Why_is_a_OpenGL_2.0_compatible_graphic-controller_the_recommended_minimum_for_XBMC.3F
as well as:
http://xbmc.org/wiki/?title=XBMC_for_Linux_specific_FAQ#Currently_OpenGL_2.0_hardware_is_only_needed_for.../

So until the open source radeon driver supports full 3D OpenGL 1.4 with GLSL 
and ARB support, you need to use the latest ATI restricted driver (meaning the 
closed source binary driver from ATI). You can follow these instructions for 
help on installing the latest restricted drivers:
http://xbmc.org/wiki/?title=XBMC_for_Linux_specific_FAQ#How_can_I_sort_out_graphic.2Fvideo_issues_in_XBMC_for_Linux

-- 
xbmc not working with opensource radeon driver in jaunty
https://bugs.launchpad.net/bugs/363139
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