This has happened because of two changes and a lack of co-ordination between ATI and Linux developers. The first change is that many desktop Linuxes, including Ubuntu 9.04 and Mandriva 2009 Spring are now using the latest X.Server, version 1.6.. X.Server provides the basic framework, or primitives, that Linux and Unix computers use to display their graphics. Everything else you think of as the Linux desktop, such as GNOME 2.26 and KDE 4.2.2, runs on top of X.Server.
X.Server 1.6 has been available since February of this year. ATI didn't support it immediately. And, this is where the second change came in. The graphics branch of AMD finally got around to supporting X.Server 1.6 with the ATI Catalyst 9.4 driver (aka fglrx 9.4) release in late March. There's only one problem with these new drivers: They don't work worth a darn.
To quote one disgruntled Ubuntu user, "the 9.4 driver isn't so stable even with the right GPUs (graphic processing units)."
Adding insult to injury, the 9.4 driver doesn't support a great deal of older, but still common, ATI graphic devices. Specifically, according to ATI, the fglrx 9.4 "currently supports Radeon 8500 and later AGP or PCI Express graphics products, as well as ATI FireGL 8700 and later products." If you're running with older hardware, you can expect to see a black or corrupted screen if you try to use the 9.4 driver.
Making matters even more vexing, the 9.3 driver, which did support much of the older gear, doesn't work at all with X.Server 1.6. In short, it's a Catch-22. You can get great graphics support with older versions of Ubuntu and the ATI driver, but if you want all the other goodies in the new Ubuntu, you have to give up great graphics performance.
The cherry on the top of this sundae of annoyance is that Ubuntu 9.04 came with a beta of fglrx 9.4, which works even less well than the recently released final version.
If you have newer hardware, you can try manually installing the newest driver as described on the Ubuntu forum. As the writer comments though, "Your mileage may vary."
I'm not holding my breath though. AMD/ATI is shrinking after years of losing money. I doubt very much that Canonical, or all the Linux vendors together, will convince them that they need to support older chips and fix up their drivers.
The moral of the story is that all drivers should be open-sourced. As it is, you can use ATI graphics with open-source drivers but you're not going to see great performance and you can pretty much kiss using 3D Compiz Linux graphics good-bye. If developers had real access to ATI chips, we could look forward to having great ATI graphics on Linux, but as it is, we've taken a step back, and I don't see much chance of taking two steps forward anytime soon.