The driver allocates memory for a big combined dual screen  (it detects both a 
VGA and an LCD at 1600x1200):
(II) RADEON(0): Memory manager initialized to (0,0) (3520,4766)
(II) RADEON(0): Reserved area from (0,1600) to (3520,1602)
(II) RADEON(0): Largest offscreen area available: 3520 x 3164

and therefore have no VRAM left for DRI. If you are not using all that
screen space, you can configure xorg.conf with a "Virtual" size, see
https://wiki.ubuntu.com/X/Config/Resolution

-- 
[Needs AGPMode quirk] Freeze with ati driver during boot on 8.10
https://bugs.launchpad.net/bugs/296617
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which is subscribed to xserver-xorg-video-ati in ubuntu.

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