I have an X1650 256 DDR2 that uses the same setting. The driver and card support virtual RAM. Extending the video storage size using system RAM so the card can store more "stuff".
Video is an ongoing issue. YOu need to runSo the auto-install from the binary-file seems to work now.
Anyway, I'm very pleased with the new drivers. It seems Compiz works very fine now and the slow performance of Firefox is gone now. *JIPPI* Now I can use Compiz almost all the time. Though videoplaying is a problem. The videooutput is flickering (can it be because Compiz runs in "Indirect Rendering" mode?).
Set video to X11 No Xv
In VLC you need to change the default video output to X11
Settings -> Preferences -> Video (open menu)
Check "advanced" box
Select "output modules"
Set to X11
I haven't got xine to work at all, it just crashes X
You might read more on the xgl and aiglx compositing extentions and make sure you don't have xserver-xgl installed.