can you try this:
sudo apt-get remove xorg-driver-fglrx-envy fglrx-kernel-source-envy
then try the dist-upgrade again.
** Changed in: linux-restricted-modules-envy-2.6.24 (Ubuntu)
Status: New => Incomplete
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fglrx installation crashes after distri update 7.1 to hardy
https://bugs.launchpad.net/bugs/235808
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