Correct me if I'm wrong, but direct rendering has never worked on the radeon driver past the 9200 series (I was lucky enough to have a 9200 at the time).
Unless there are new drivers I'm not familiar with, and that is more than possible, you might be out of luck.
I haven't played with X in probably half a year... I hope they've been able to improve on the driver, but I don't know anything about it myself.
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