KMS=kernel modesetting. And no, you don't really need it unless you have multiple concurrent users on the same computer. Under KMS every user has DRI enabled as opposed to without KMS option (this is why it's useful to me).
Apart from that, you're in the wrong thread.

This one talks about R6XX/R7XX. But anyway, it should be the same for R300 and below, because I use the same guide for a laptop with a R1XX. I only leave out the --with-dri-drivers=r600, which under the latest mesa git you shouldn't even need anymore.
So why don't you have KMS? Have you checked all your kernel options from the guide - they have to be exactly like written in the guide? Did you disable KMS via grub (radeon.modesett=0)?
For mesa and dri and stuff you should find a wiki.