xorg.conf is not automatically created by the driver, it works without
one. You can generate one with "sudo dpkg-reconfigure -phigh xserver-
xorg".

What exactly is the xrandr command that freezes the system?

Does it help if you follow this hint:
 (II) RADEON(0): Max desktop size set to 2048x1200
 (II) RADEON(0): For a larger or smaller max desktop size, add a Virtual line 
to your xorg.conf
 (II) RADEON(0): If you are having trouble with 3D, reduce the desktop size by 
adjusting the Virtual line to your xorg.conf
and specify a smaller virtual size, like 1400x1050?

-- 
[gutsy] xrandr freezes with ati driver on Radeon 7000 at 1400x1050
https://bugs.launchpad.net/bugs/158112
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