Was having the same issue on Edgy, using compiled FGLRX Driver (28.8) on
a Dell D600 with the ATI Radeon Mobility 9000.

The following fixed the issue:

sudo vi /etc/X11/gdm/gdm.conf

Scroll down and uncomment and change the line to:

AlwaysRestartServer=true

Fixed!

-- 
Logout proces hangs
https://bugs.launchpad.net/bugs/38915
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