I am using an ATI Radeon 7500 as well but on a Gateway Laptop.

Last night I downloaded the latest 6.0.6 Dapper desktop CD.  It was
apparent even in the LiveCD that there was a graphical issue.  I
installed it and the problems outlined above by others existed.

So that's a completely vanilla install with no config changes or driver
updates, or anything.  I ran the update and downloaded the 130 updates
that were required thinking a fix might be already out there and nothing
changed.

My problem looks exactly like the screenshot above.

-- 
Garbled using open source Radeon driver
https://launchpad.net/bugs/38198

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