OK, I have upgraded again to jaunty.

X hung because it still used the radeon driver but tried to load some fglrx 
extensions.
Forcing it to use fglrx results in error message that states that no supported 
devices are found. (X1600 mobility is not that old...)

Running RadeonHD now...

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Jaunty: Display doesnt work for ATI Mobility Radeon HD 3470
https://bugs.launchpad.net/bugs/355495
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