I can confirm this behavior on a new install of Kubuntu Oneiric from
today, i have to manually disable modesetting so the system can boot at
all.

Ubuntu seems to have this sorted, but Kubuntu still lacks this fix.

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https://bugs.launchpad.net/bugs/827120

Title:
  FGLRX package does not disable radeon modesetting and prevents X from
  starting.

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