Ok, was able to fix it.

I believe what Martin wrote a couple of posts above is correct, but only
for cards that are no longer supported. To find out if your card is
supported, go to the ATI site (http://ati.amd.com/support/driver.html)
and try to find a driver for your card. If the driver offered is the 9.4
version, then the proprietary driver should work for your card.

However, after upgrading to Jaunty I was experiencing the same problem
described in this issue. To cut a long story short, it turns out that my
xorg.conf (working fine with the proprietary driver on Intrepid) was no
good for this new version.

Everything works ok now, after regenerating xorg.conf with the command
below, and rebooting.

/usr/bin/aticonfig -initial

-- 
[ATI driver specific] Ubuntu Jaunty hangs after usplash with fglrx 8.600 or 
8.6002
https://bugs.launchpad.net/bugs/346028
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