I have exactly the same card on my trusty old laptop, and assure you
desktop effects do run. Not as smoothly as on a brand new C2D machine,
but still well enough. As far as I know, this card is only supported by
the open source radeon driver, so no use in trying out fglrx.
In fact, effects performance on KDE 4.2 is the best for me since the
beginning of KDE 4. Some of the effects are still lagging, but shadows,
wobbly windows, the magic lamp, the desktop cube, screen dimming to name
just a few that come to mind work well. Perhaps you should look for the
option that says disable functionality checks, and tick it. Otherwise,
it would not work.
Another thing that comes to mind is to enable AIGLX in your xorg.conf,
and disable XGL. I can give you more details as soon as I get home to my
laptop, which shoud be in a few hours.
Lastly, you may check in System Settings, Default Application, Window
Manager (may not recall it correctly), the last option is the default
window manager, make sure it says KWin.
In 11.0 I used compiz as it was much smoother than kwin then, but in
11.1 compiz was somewhat problematic, and never gave me that kind of
performance. So I removed it completely. However, I must say the wobbly
and magic lamp on compiz worked better that the corresponding effects in
kwin.
Perhaps someone could post more detailed info about manual
configuration to tweak their performance?
Don’t get desparate, it does work! 
–
hermesrules
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