Please try to use the kernel parameter "nomodeset" or "radeon.modeset=0"
and see if that help.

>From bug:
https://bugs.launchpad.net/ubuntu/lucid/+source/linux/+bug/545096

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[Lucid AMD64] Dual monitor distortion / crash - ATI mobility Radeon X1400
https://bugs.launchpad.net/bugs/573290
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