I think there should be working 3D for your card, but I'm not one of the developers, so I'm not exactly a definitive resource. For reference, I've got an HD3200 (780G) and an HD 4770 running open source 3D right now, and I used to have an HD4850 as well which ran just fine.
There's a PPA (maintained by Tormod Volden) that includes pretty much everything except the kernel at: https://launchpad.net/~xorg-edgers/+archive/ppa
In order to get stuff working, I think you'll need to also build your own kernel. I pull my copy off of Linus' 2.6 git tree:
NOTE: I believe that the kernel update is required for 3D, but I'm not sure if that's the case. I do it just as a precaution, but updating libdrm and the other packages might be enough... Someone else might be able to clarify this.
You can use this to check out the sources, if you have git-core installed:
git clone git://git.kernel.org/pub/scm/linux/kernel/git/torvalds/linux-2.6.git
Usually, for a start for the kernel config, I copy /boot/config-`uname -r` into the checked out kernel source as the .config file.
If you want to use kernel mode setting as well, you'll probably want to go into the drivers/staging tree and enable modesetting on radeon by default. Otherwise, you can enable it at boot time by adding the radeon.modeset=1 parameter to the kernel parameters.
Other than that, enable the radeon drm driver, build DRM as a module, and disable the other framebuffer devices (vesafb,radeonfb,etc).
Then just save the config, run make && make modules && make install && make modules_install, run update-grub, and reboot and pray.
If you've installed the PPA packages correctly (add the PPA to your system, and then update), you should at least get working 3D. If your kernel is configured correctly, you'll also get kernel mode setting.
If you have problems with this, or succeed using these directions, I'm sure there's plenty of people here who can try to help, and I'd love to hear if I actually got it right