I'm running a Jaunty on that machine, and I don't see that issue. I've been
playing with the configuration, and ran the radeonhd driver for a while, so
that doesn't really say anything about how a newly installed system will
work though.

I can confirm that the radeon Xorg driver works. It complains that the
kernel doesn't support DRI on my card though, so I don't get accelerated
video etc.

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[HD 3650] cannot start gnome X in intrepid (gray screen with horizontal thin 
flashing black lines)
https://bugs.launchpad.net/bugs/272406
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