Using an ATI 4200 HD upgrading to Catalyst 11.9 did NOT WORK for me, either. 
Rainbow effect is solved, and display looks fine for a few second, but soon 
gets disorted (window contents diagonally shifted) and instable. Switching to 
text console returns a unreadablye display  and finally locks the whole netbook 
(Thinkpad Edge 11).

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https://bugs.launchpad.net/bugs/838577

Title:
  GNOME Shell display problems with FGLRX

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