Same problem with ATI radeon 9000 on notebook ASUS L5830C. I solved this 
problem with ajgreeny  suggestion changing to 16 bit colour; here are principal 
line of my xorg.conf:
Section "Monitor"
        Identifier   "Monitor0"
        VendorName   "Monitor Vendor"
        ModelName    "Monitor Model"
EndSection

Section "Device"
        Identifier  "Card0"
        Driver      "radeon"
        VendorName  "ATI Technologies Inc"
        BoardName   "Radeon RV250 [Mobility FireGL 9000]"
        BusID       "PCI:1:0:0"
EndSection

Section "Screen"
        Identifier "Screen0"
        Device     "Card0"
        Monitor    "Monitor0"
DefaultDepth 16
 SubSection "Display"
  Modes "1400x1050" "1280x1024" "1280x960" "1152x864" "1024x768" "832x624" 
"800x600" "720x400" "640x480"
 EndSubSection
EndSection

-- 
Desktop background becomes black when desktop effects are enabled on GNOME and 
KDE
https://bugs.launchpad.net/bugs/462436
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which is subscribed to xserver-xorg-video-ati in ubuntu.

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