@dano1212:
Well, the first thing I had tried was also installing the latest XP drivers and for a month or so all worked pretty decent. There was some limitations, I guess due to the lack of DirectX 9 support. For example, Flash videos could not be displayed in Fullscreen mode (caused BlueScreen) unless you disable the graphic accelerator (right click on the flash video -> settings). Also, no video playback was possible with the VLC media player (sound only). You have to deactivate Direct3D etc. in order to get it to work (Display Resolution -> Exended Settings -> Troubleshooting).
However, after installing Service Pack 1 there was suddenly BlueScreen over BlueScreen, apparently caused by ati3duag.dll. Eventually, after doing lots of research, I found a solution that worked perfectly for me: The ATI display drivers included with Windows Vista. You can download it over here:
http://www.myupload.dk/showfile/844500f4dd7.zip
Extract the content of the Zip-Archive to a directory of your choice. Then go to System -> Hardware and Sound -> Device Manager. Right click on your video card, choose "Update driver", then "Search your computer for driver software", then "Choose from list...". Uncheck "compatible devices". At the bottom right is a botton "Have Disk", choose the extracted folder. It will automatically detect and display the video card model "ATI Mobility Radeon 7500". During installation process, Windows will ask you if you want to install altough the driver has no certification. Simply choose "Install anyway".
That's it! Now I can even play 720p HD Youtube videos smoothly. Insane!