I got the same issue on Archlinux and solved it patching the kernel with
a fedora patch. see http://www.mail-archive.com/dri-
[email protected]/msg44253.html

it is now working with KMS without any corruption.

Hope that helps

Olivier

-- 
[KMS][R300] Screen artifacts on X
https://bugs.launchpad.net/bugs/413259
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which is the registrant for xserver-xorg-driver-ati.

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