Exact same problem here:

Machine: Acer Aspire 2012WLMi Laptop
GFX Card: ATI Mobility Radeon 9700
Distribution: Hardy
Kernel: 2.6.24-18-generic

Symptom: ati driver shows gdm login screen but crashes on first input
event. fglrx crashes after login in default session (probably due to
compiz being used) or when using any 3d stuff in failsafe session. Using
a USB mouse makes problem go away for ati.

Will try mouse + fglrx and -386 kernel next and report back

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[hardy] kernel 2.6.24-16-generic + radeon driver = system freezes
https://bugs.launchpad.net/bugs/220345
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