It's working, but there's no support for 3D (hardware accelerated OpenGL) yet. The most important consequence of this is that you can't have video play without tearing right now and compositing ("Desktop Effects" with Compiz of KDE 4) doesn't work.
Today your best choice would probably be something from the R5xx family, eg X1300 through X1950. The X1650 is a decent low-midrange card and the X1950PRO is a nice upper-midrange card if you can find one for a good price.
That said, we are moving pretty quickly on open source support for HD2xxx/HD3xxx, so if you already have one I would just stick with it.
EDIT - sorry, just saw you were asking about mobile GPUs. Again, the 5xx family is probably best but there is the added complication of Windows-specific BIOS features (or at least "not-tested-with-Linux") added to many of the laptops.