Never mind, was easy to fix.
Here is the solution:

Remove ALL linux-restricted-modules related packages, and uninstall ALL
proprietary ATI-related drivers. Go into a TTY and shutdown GDM (or kdm)
and edit /etc/X11/xorg.conf (I like vim) and replace all occurences of
"fglrx" with "radeon". Start GDM/KDM again and then go into an X
terminal (xterm, gnome's terminal, i use terminator) and run "jockey-gtk
-u && jockey-gtk -c && jockey-gtk -e xorg:fglrx". Restart X server, and
that's all.

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ATI FGLRX acting weird, not sure what to say
https://bugs.launchpad.net/bugs/364966
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