I have this same problem, I've just tested using Ubuntu 8.10 beta, It
happens the same problem using 8.04, but there is no problem with 7.10.
Right now I'm using xorg.conf recovered from my 7.10 installation and
the problem still stays.

So, I think there were some changes from 7.10 to 8.04 which provokes
that ATI Radeon Mobility 9700 (RV350 M10) no longer works.

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DRI lockup with AGP on ati (mobility radeon rv350)
https://bugs.launchpad.net/bugs/141551
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