Toshiba Satellite 1110 with small video memory also has this problem.
Tried above suggestions related to xorg.conf and acceleration settings, this 
results in a system that refuses to boot into Ubuntu and has to be hard reset.
What does work (so far) on this machine is to set System -> Preferences -> 
Appearance -> Visual Effects to "None".
However good luck getting to change the setting in the GUI since it defaults to 
"Normal" which is marginally usable on this old machine.

-- 
(32MB) certain windows drawn garbled when XAA is used
https://bugs.launchpad.net/bugs/426582
You received this bug notification because you are a member of Ubuntu-X,
which is the registrant for xserver-xorg-driver-ati.

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