Having exactly the same issue myself. Under Hardy Heron 8.04. 
No acceleration at all. Tried both radeonhd and fglrx. 

This is a problem apparently only for the AGP version of this card. With
the PCI version there is no problem at all.

Just for the info my system setup is AMD Opteron(939) 175 Dual Core, 2Gb
DDR, 2x160 Maxtor, and the lousy ATI HD 3850 AGP, which is truly a fast
card WHEN it works, because i had problems also under Vista.

Please post back any changes so i can test/debug if needed.

-- 
[fglrx] System lockups when starting gdm with fglrx
https://bugs.launchpad.net/bugs/202244
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