I've updated the driver every time I've seen a new one hoping it would fix the problems. I've uninstalled and reinstalled the drivers, reformatted and went back to XP from Vista just to see if the Vista drivers were the problem, but I still get the exact same thing. For a few months, it worked fine and I don't remember there being any change on my computer around the time this started.
Those symptoms sound like a driver problem or a heat problem.
If you are using the latest driver, check to see if there is a beta version that might solve the problem.
VGA cards generate lots of heat, even more than the CPU. They are designed to tolerate this, but there is a limit.
Check that the VGA fan is working.
Remove the side cover to your case, and direct a house fan into the case to insure that the case temperatures are as good as it can get. If the problem goes away, then look into case cooling solutions.
The cooling didn't seem to help, the ATI card stays at around 78C anyway, isn't that fairly normal? Now my computer has started locking up after a few minutes of being in a 3d game, but it runs fine on 2d stuff. Is my PSU ok for this set up?
PSU is a FSP Bluestorm AX500-A
CPU: Core 2 6400
and the Radeon x1900xt
I think a vga card is good to 100c, so you are ok there.
FSP 500w is a quality part, but not top tier. If the x1800xt is more power hungry than a 8800gts (26a), or you are powering lots of other devices, then the psu could be the problem . Sometimes psu's can deteriorate with age.
If you are so inclined, you can get a PC Power & cooling silencer 610 (49a) directly from them for $120. Check their refurb list also.