Removed xorg.conf and restarted. It seems this also causes a fallback to the 
oss ati driver and my screens set to mirror.
Using the "configure display settings" tool I disabled mirror and the tool 
asked to change the virtual resolution in my xorg.conf. I was asked to log out 
and log in and now everything works correctly without using the "fix".

xorg.conf contents:

Section "Screen"
        Identifier      "Configured Screen Device"
        Device  "Configured Video Device"
        SubSection "Display"
                Virtual 2560 1024
        EndSubSection
EndSection

Section "Device"
        Identifier      "Configured Video Device"
EndSection

-- 
At startup, can't drag windows between dual monitors
https://bugs.launchpad.net/bugs/322921
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