Actually, I noticed this works ok for example with Ubuntu 7.04 development version. My only problem is when both DVI and VGA outputs are used, unlike what was before - so generally resolution will go above 640x480 just fine!
** Changed in: xserver-xorg-video-ati (Ubuntu)
Status: Confirmed => Fix Released
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Resolution in X will not go above 640x480 on Radeon X800
https://launchpad.net/bugs/44873
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