OK, I applied the nodither patch (amd64) and reverted to using radeon(instead 
of fglrx) driver to test.
It worked great getting to the desktop, using it now.
However, I didn't notice first because I had set automatic login, but I still 
have the issue with huge fonts on the gdm login screen.

I found this old bug, could it be related? 
https://bugs.launchpad.net/ubuntu/+source/xserver-xorg-video-ati/+bug/151689

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[intrepid] Xorg fails to start xserver-xorg-video-radeon (CD_INVALID_OPCODE)
https://bugs.launchpad.net/bugs/274234
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