This document explains how to install
and use the open-source radeonhd
drivers on Ubuntu. This shouldn't be
necessary... unless you're having
problems with the open-source
"ati/radeon" driver that comes
pre-installed with Ubuntu.pre-installed with Ubuntu.
https://help.ubuntu.com/community/RadeonHD
EDIT: As JanC pointed out, you shouldn't install the RadeonHD driver if the pre-installed driver works.
Well, I have an HD3650, and got into similar problems. Open drivers worked slow (although they were usable), the proprietary were good at games, but desktop was useless - even moving windows was very laggy.
Then I noticed ATI had JUST released new version of the proprietary drivers, which are said to have much better support for the latest X and Unity. However, ATI released them too late, and they failed to get into Ubuntu repositories.
What I recommend you is to get the newest one from the ATI's site
This will, however, require manual installation. No worries though, although this is not a .deb package, installation is quite straightforward, just run the downloaded driver file, and it will install for you.
Oh, and be sure to uninstall the driver (fglrx) Ubuntu has installed to you, before you install the one from ATI site.
In my case this provided incredible improvement of overall performance, and my desktop is now working smooth as it have never before (and the games work perfect too)! :) I hope it will help you too!
Best Answer
Did you try to turn off desktop effects while you play? I saw on forums that compiz may cause flickering of video while on.