Just curious about the status of this issue. 
I too experience exactly the same problem with my ATI Radeon x1650 on my fresh 
Gutsy install (as of 6. nov 07): I enable the restricted driver, reboot...and 
black screen.

The only graphics setting that lets me see the Desktop is 'vesa'. See my
attached lspci

** Attachment added: "My lspci -vvnn"
   http://launchpadlibrarian.net/10296877/lspci_vvnn.txt

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fglrx - gutsy - ati: Black Screen with ATI RV535 [Radeon X1650 Series] 
[1002:71c7]
https://bugs.launchpad.net/bugs/146515
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