I also have a problem with this video card, 
Here's a link http://www.wsu.edu/~ice124/ that well describes what happens on my PC:
Currently, i'm using vesa driver ... and waiting xfree4.3 radeon/ati driver.

Hopes being helpfull


---
David Jeanneteau


Extract from specified link :
------------
Configuring XFree86:

Getting XFree86 up and running is fairly simple.  There are two options for your 
display driver: use the generic vesa driver (provides 
basic 2D functions, but is stable) or the radeon driver (supports SVGA out and 
possibly 3D, but is slow).  I have included XF86Config 
files for both modes below.  Just move the files into your /etc/X11/ folder and rename 
them to XF86Config.

Vesa - This mode is the safest and most stable.  It's the mode I currently use. 
XFree86 4.3 should include a
faster, more optimized VESA driver.
Radeon - This mode is somewhat buggy in XFree86 4.2.  SVGA out works, as well as more 
advanced features

(transparency, etc).  However, this driver is VERY slow drawing to to the screen.  The 
good news is that the Radeon 7500 (which the 
Mobility U1 is based on) is slated to be fully supported in XFree86 4.3, which should 
be released, as they say, very soon.  If you're 
feeling particularly brave, you can try the 4.2.99 CVS from xfree86.org.  Good luck, 
and email me with any news.  If you are wondering, 
here are the settings I used for the display in the file:
------------

 


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