I got the same thing… and in a matter of fact, it’s getting worse and worse.
Since openSUSE 11.3, my experience with ATI legacy is really bad.
With KMS enabled my system freezes with kdm start. a CTRL+ALT+F10 shows me gpu lockup. only thing to do is hard shutdown/reboot.
With KMS disabled i get this result (see screenshot included at the bottom. Radeon with swrast or radeonhd… the two show similar behaviour.
There is a bug report here: https://bugzilla.novell.com/show_bug.cgi?id=678264 which has a work around for R5xx users (Radeon X1xx series) and R3xx/R4xx users (Radeon 9600/X300/Xxxx) users. Neither of you have that hardware, but I offer the solution for that hardware in case there is some benefit (ie you could try this and see if it also works for your radeon hardware:
Workaround for R5xx users (Radeon X1xx series)
disable KMS by adding ‘nomodeset’ to kernel boot options
add the following section to your /etc/X11/xorg.conf.d/50-device.conf
I’ve tried the xorg.conf.d trick you provided and it seems to be better now. Instead of my whole screen garbled with artifacts, i now got two vertical bars in my screen wich show this behaviour. It leaves me with about 80% of good readable text, so i’ll stick with that for a while 'till there’s a better solution or fix.