I think it's caused by your VRAM, uninstall your drivers, and the registry use "DriverSweeper" do a clean install of the latest drivers and check again. If that doesn't fix anything its clearly your VRAM. You could also try to underclock your memory with a overclocking utility like atitool or rivatuner
Do you have Nvidia drivers hanging around by chance as well? If going through the control panel and unistalling that way doesn't work then I would do the suggestion above by using driver sweeper but make sure there are NO video drivers left.
i had the same problem with my 4850 when i updated to 10.6 drivers, but i found my old 10.4 installation in my hard drive and uninstalled the 10.6 drivers and installed the 10.4 drivers, and its fine now, try downloading the 10.4 driver, should work for you aswell