I also had problems with xorg on a Radeon. Mine is a Radeon Mobility
7000 IGP.

What would happen is that upon loading GDM, the screen would go black, with 
some garbled output at the top of the screen. I did get a cursor and I could 
move it.
If I tried to kill the X server by Ctrl-Alt-Backspace, or I tried to switch to 
a terminal, the screen would hang, although I could still reboot using 
Ctrl-Alt-Del. Is this the same behaviour as you are seeing?

My problem was solved by installing new ati drivers from this page:
https://wiki.ubuntu.com/XorgOnTheEdge
Maybe this i worth a try for you too?

Regards,
Jeroen

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[Hardy Alpha-4]  xserver-xorg can't start with ATI Radeon X1200
https://bugs.launchpad.net/bugs/188720
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