I have finally managed to make the display drivers on my girlfriend’s laptop (Dell Inspiron 6400) work with the propriertary ATI drivers.
It took me about a week and a lot of research but I finally managed to make it work. To make a long story short, the problem was that before I tried to install the propriertary drivers, I had installed the xserver-xgl package as it is necessary to have 3d acceleration with Ubuntu’s restricted drivers. Unfortunately, as the propriertary drivers can finally work with AIGLX, XGL is not needed anymore. Also unfortunately, this is not mentioned anywhere and not are you warned about it at all. As a result, I didn’t even think of that this might be the cause.
Furthemore, the ATI installation wiki, does not even mention this in the verification section either. I have now added it just to save other the same frustration I went through.
Hopefully, once I uninstalled the xserver-xgl driver, ATI became the default renderer. Unfortunately since compiz is used to work with XGL, it refused to activate. Fortunately the envy script is setup to configure compiz to use AIGLX so all I needed to do to fix this was run the script and have it reinstall the ATI drivers.
Finally I have normal 2D and 3D Capabilities. I especially hated not being able to see a fullscreen movie.
Lesson for the future learned: Ignore manual installations and just run the goddamn Envy
Now, all I need to do is figure out why power management is not working :-/