Not exactly the same thing, but I had lots of VPU-recovery graphics issues with Gal-Civ 2, an ATI 2600XT and the 9.late-in-the-year drivers. Fixed by reverting to some 8.early driver.
Seems old cards & new drivers don't mix as well as ATI wants us to think. Try going back to a 2008 driver and see what happens.
Am now on a 5670 with 10.4 drivers. No problem with Elemental, but I haven't re-tested GalCiv since the upgrade.