Hi Ave,
            I'm not 100% familiar with the ATI drivers as I have alway had a 
nvidia card myself, but my suspicion is this is something to do with the KMS 
(Kernal Mode Setting). I believe KMS is only implemented in the open source ATI 
drivers but you have said the proprietary Catalyt drivers have the same issue 
so maybe they do implement KMS. Another reason I suspect this may be the case 
is you said you could get around this before 9.10 which is when KMS was first 
supported for the ATI driver. 

Can you try disabling KMS an see if that makes a difference? See:
https://wiki.ubuntu.com/X/KernelModeSetting not sure if the settings on
that page are still valid for turning it off or not so you may need to
do more research if that doesn't work.

If that works then we can try reassign this bug to the right project.
Good luck.

FYI anyone reading this: Kernel mode-setting (KMS) shifts responsibility
for selecting and setting up the graphics mode from X.org to the kernel.
When X.org is started, it then detects and uses the mode without any
further mode changes. This promises to make booting faster, more
graphical, and less flickery.

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https://bugs.launchpad.net/bugs/775089

Title:
  selecting resolution in monitors doesnt change resolution in log in
  screen etc

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