Had same problem for long time. I have Mobility Radeon x1400 in aspire notebook and after ati2dvag error, could only reboot in VGA mode

. Here is how i fixed my problem:
I scanned with avira, spybot, and cc cleaner to remove all the garbage on my computer (all freeware) I read threads indicating newer ATI catalyst require microsoft .net framework 2.0 instead of the previously installed 1.0 version. I updated accordingly. I removed all ATI software and installation files...or so I thought. I couldn't get rid of all the ATI files although my registry cleaners seemed to indicate I did. I tried everything to remove these, even ATI removal tool at their website, all of which is garbage. So....I downloaded regcleaner 4.3, its free and ancient, but gives best format for truly eliminating these pesky files. Download this, utilize, remove all ati products. Reboot in VGA mode. Computer recognizes new hardware, reinstalls driver. I went to my desktop, right click, changed settings to correct resolution, walla, no problems since. This may not work for newer cards, or those using AGP. My CPU uses a new PCI control instead of AGP so cobrakaun's solution may be the best for now if you are. After the graphics returned to normal, i reinstalled ati catalyst, used the ATI tool for clocking, and all is great. NO MORE ATI2dVAG errors. good luck all, this is a ridiculous thing to have to troubleshoot...if you can avoid ATI, by all means do it!