An update:

Unfortunately, still seeing the problem.

Removing the wi-fi (rt2500) modules has no effect - the problem still occurs. 
So, this does not seem to be the issue
As an aside, there is another issue with the rt2500 drivers included in Hardy, 
which makes the wi-fi conneciton very slow (Bug #190515). 

What with all of these issues, really wish I had stuck with Gutsy. Especially 
as there doesn't seem to be any straightforward downgrade path for Ubuntu
The end result is that I'm typing this on Windows !
Anyway, next time I upgrade, I'll try with the live cd first, as some users 
seem to have done.

Anyway, last step before downgrading (via a new install) will be to turn
off Compiz and the native ATI drivers, and see if this improve matters.

Has anyone else had any success in getting over this issue ?

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Ubuntu 8.04 Freezes 
https://bugs.launchpad.net/bugs/228633
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