I had a prob with ATI radeon drivers at one point where the newest version (at that time, I believe v10.x) ran like crap for any 3-d games (in particular, Virtual Pinball and Future Pinball).
At the time, I had to revert back to, I believe, an 8.x driver set.
But, just recently, as I was trying to get an ELO touch screen connected, I revisited the video drivers. Ends up, ATI has released a newer 11.x driver set that corrects whatever the prob was that they introduced at one point.
I'd probably
1) turn off auto updates (so you can pick andchoose from the list instead of it just automatically installing new updates).
2) Grab a few older revs of the ati drivers from their site.
3) Uninstall the current drivers, reboot, make sure things work in the default win drivers (though it'll be slow)
4) install the older driver sets, one at a time. and test. If it doesn't work, uninstall, reboot and repeat.
I've been there. It sucks.