This is the guide that helped ... just worked on my desktop too!
The unnoficial ATI ubuntu howto:
1)If you have installed the drivers through synaptic or apt-get, uninstall them using apt-get or synaptic(or kynaptic).
2) Download the 50MB(!) installer from ATI (
http://www2.ati.com/drivers/linux/a....16.20-i386.run)
3) check that you have your kernel headers in /usr/src/linux-headers-<version> and that /usr/src/linux is a symbolic link to that directory. This is needed to compile the fglrx kernel module.
3.1)If you don't have the headers get them by finding the package in synaptic called "linux-headers-(the name you got from uname -r)". Then "ln -s /usr/src/linux-headers<version> /usr/src/linux".
4) change to single user mode via "sudo telinit 1", this will drop you to the console.
5) start the installer as root: "sudo sh ./ati-driver-installer-xxxxx"
6) most people can just accept the defaults in the installer (just hit enter at each screen) until the driver starts installation.
7) wait for installation to finish (shouldn't take too long, 30sec at most maybe).

run "sudo fglrxconfig" to generate your /etc/X11/xorg.conf file or simply change "radeon" to "fglrx" in your Device section if it exists already. It might be a good idea to generate one even if you have one already just to see how they are different. Make sure you don't copy over the original!
9.)reboot (I recommend a reboot, even though it is technically not necessary, as I've hit problems before when not rebooting).
Troubleshooting:
Direct Rendering doesn't work:
Try "ls -l /lib/modules/(kernel version)/kernel/drivers/video/fglrx.ko". It should say the same date as the date you ran the ati driver installer. If not you will have to copy the fglrx driver from /lib/modules/fglrx/. First rename or delete /lib/modules/(kernel version)/kernel/drivers/video/fglrx.ko and then "sudo cp /lib/modules/fglrx/fglrx.(kernel version).ko /lib/modules/(kernel version)/kernel/drivers/video/fglrx.ko". Then, make sure you REBOOT.
Direct Rendering still doesn't work: Yeah...that happens. Check
http://rage3d.com/board/forumdisplay.php?f=88 and search the rage3d forum and google for the ati linux howto and search this forum. Someone may have had one of your problems already. If you find a solution feel free to tell everybody.