If you run the latest Karmic live CD you already have a pretty recent
driver version. We would need to see the log to see what goes wrong.

Anyway, to install a newer version on the command line (assuming the network is 
up):
 wget 
https://edge.launchpad.net/~xorg-edgers/+archive/drivers-only/+files/xserver-xorg-video-ati_6.12.99+git20090911.ac853ca0-0ubuntu0tormod_i386.deb
 wget 
https://edge.launchpad.net/~xorg-edgers/+archive/drivers-only/+files/xserver-xorg-video-radeon-dbg_6.12.99+git20090911.ac853ca0-0ubuntu0tormod_i386.deb
 sudo dpkg -i *.deb

-- 
[HD 4890] X server does not start up
https://bugs.launchpad.net/bugs/361596
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