Is anyone still having this problem in hardy while using the 'ati'
driver?

Yes. I use the open-ATI driver with X700 and if I use any 3D application
(compiz or small 3D game) I get desktop freezes with mouse movement, so
it is not related to Compiz only. It smells of some 3D buffer overun
perhaps in the ATI driver, just guessing :-)

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X freezes when Compiz is enabled on ATI Radeon Mobility
https://bugs.launchpad.net/bugs/195051
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