So as root aticonfig had worked fine for you (saying something about finding an uninitalized file and then making a backup)?
If you have a place to upload the files, upload your Xorg.0.log and xorg.conf (or just try Livna again) or mail them to Michael [at] phoronix.com. Alternatively, you could wait shortly for the July ATI drivers.
Ok so things are working now. Just a brief explaination of what happened in the meantime.
I think the problem that I was having was that the aticonfig script was somehow not changing the driver reference in the xorg.conf file properly. I tried to do it manually but I could not edit the file for some weird reason. I think it might have been because I was running out of space on the /usr partition. Can't quite understand how it got full but that does not explain why I could not write to /etc.
Anyway, since I had to redo the disk to get more space I decided to do a clean install. Spent all day doing that and then updates, all this on a not very fast link, so it really did take all day.
Added livna after doing the updates and then installed the 8.26.18 driver. Works beautifully now. Right now running dual desktop and it seems fine. I will try google earth soon to see if that works. Will let you know what happens with that.
Thanks for all the valuable help Michael, that is what the Linux community needs.