Hi again. I've been using 9.5 for a while, but decided to return to this issue. I made some discoveries and thought I'll share my findings here 
It seems, that the issue with the fonts might actually be a X.org bug. With all other drivers than <=9.5 fglrx, I get the same behaviour; the fonts are way too small (1-2 pixel high). By looking at the Xorg.0.log file, I found out, that the DisplaySize option is read correctly by X.org. But the EDID information overrides this later on! Here's a snippet from my xorg.log:
Code:
(II) fglrx(0): ***Display: ConnectedDisplayTypes=0x00000080, disabled=0x00000000
(II) fglrx(0): Connected Display1: DFP on secondary TMDS [tmds2i]
(II) fglrx(0): Display1 EDID data ---------------------------
(II) fglrx(0): Manufacturer: SNY Model: 5c01 Serial#: 16843009
(II) fglrx(0): Year: 2008 Week: 1
(II) fglrx(0): EDID Version: 1.3
(II) fglrx(0): Digital Display Input
(II) fglrx(0): Max Image Size [cm]: horiz.: 160 vert.: 90
(II) fglrx(0): Gamma: 2.20
(II) fglrx(0): No DPMS capabilities specified
(II) fglrx(0): Supported color encodings: RGB 4:4:4 YCrCb 4:4:4
(II) fglrx(0): First detailed timing is preferred mode
(II) fglrx(0): redX: 0.625 redY: 0.340 greenX: 0.280 greenY: 0.595
(II) fglrx(0): blueX: 0.155 blueY: 0.070 whiteX: 0.283 whiteY: 0.298
(II) fglrx(0): Supported established timings:
(II) fglrx(0): 640x480@60Hz
(II) fglrx(0): 800x600@60Hz
(II) fglrx(0): 1024x768@60Hz
(II) fglrx(0): Manufacturer's mask: 0
(II) fglrx(0): Supported standard timings:
(II) fglrx(0): #0: hsize: 1280 vsize 1024 refresh: 60 vid: 32897
(II) fglrx(0): Supported detailed timing:
(II) fglrx(0): clock: 148.5 MHz Image Size: 1600 x 900 mm
(II) fglrx(0): h_active: 1920 h_sync: 2008 h_sync_end 2052 h_blank_end 2200 h_border: 0
(II) fglrx(0): v_active: 1080 v_sync: 1084 v_sync_end 1089 v_blanking: 1125 v_border: 0
(II) fglrx(0): Supported detailed timing:
(II) fglrx(0): clock: 74.2 MHz Image Size: 1600 x 900 mm
(II) fglrx(0): h_active: 1280 h_sync: 1390 h_sync_end 1430 h_blank_end 1650 h_border: 0
(II) fglrx(0): v_active: 720 v_sync: 725 v_sync_end 730 v_blanking: 750 v_border: 0
(II) fglrx(0): Monitor name: SONY TV XV
(II) fglrx(0): Ranges: V min: 48 V max: 62 Hz, H min: 14 H max: 70 kHz, PixClock max 150 MHz
(II) fglrx(0): Number of EDID sections to follow: 1
(II) fglrx(0): EDID (in hex):
(II) fglrx(0): 00ffffffffffff004dd9015c01010101
(II) fglrx(0): 0112010380a05a780a0dc9a057479827
(II) fglrx(0): 12484c21080081800101010101010101
(II) fglrx(0): 010101010101023a801871382d40582c
(II) fglrx(0): 450040846300001e011d007251d01e20
(II) fglrx(0): 6e28550040846300001e000000fc0053
(II) fglrx(0): 4f4e592054562058560a2020000000fd
(II) fglrx(0): 00303e0e460f000a20202020202001e4
(II) fglrx(0): End of Display1 EDID data --------------------
(II) fglrx(0): Output CRT1 using monitor section aticonfig-Monitor[0]
(II) fglrx(0): Output DFP2 has no monitor section
(II) fglrx(0): Output CRT1 disconnected
(II) fglrx(0): Output DFP2 connected
(II) fglrx(0): Using exact sizes for initial modes
(II) fglrx(0): Output DFP2 using initial mode 1920x1080
(**) fglrx(0): Display dimensions: (480, 270) mm
(**) fglrx(0): DPI set to (101, 180)
Note the size reported by EDID: 160 x 90cm! In addition, that it is not true (the right measurements are around 90cm x 50cm for this 40" display, which would actually give something readable, albeit not comfortably sized when wieving from your couch), one would like to "lie" to X.org that the display is actually smaller than it is, since the viewing distance is longer. So the EDID information makes things even worse than they were with the right measurements. The DisplaySize setting I have in xorrg.conf (480X270, that will give something around ~110DPI'sh), is detected correctly above.
But with every other driver than fglrx 9.5, the EDID information given by my LCD overrides the option! Somewhat later in the Xorg.0.log file:
Code:
(II) fglrx(0): Setting screen physical size to 1600 x 900
xdpyinfo also gives the same figures (once I get a usable font size set into a terminal window).
I got this behavious with the radeonhd driver also (the only one that should work with the 780G / HD3200; well I didn't try vesa), in addition to the fglrx driver 9.6.. For some reason, DisplaySize option DOES work correctly with fglrx 9.5.
As a workaround, I put "xrandr --dpi 125" into /usr/share/config/kdm/Xsetup (I'm using KDE4 KDM). It was the only way I could figure out to force the DPI setting. For some reason, the login screen doesn't use the DPI setting, even though it should. But, after I login, the KDE session does use the setting.
Well, I hope this helps, in case someone is hit by the same issue.