On my home machine, I upgraded from Karmic (where the ATI closed-source driver was working fine, giving me desktop bling) to Lucid, and immediately discovered that the current driver is broken in Lucid. Worse, you can't even uninstall it; apt-get remove fails, and it's impossible to get back to the generic driver in the GUI.

Luckily, we've been here before, and these instructions solved the problem, so I'm going to re-iterate the key parts, with a couple of extra things I had to do.

You need to work at a root console:

• Boot to grub menu. Select the first line (normal boot).
• Press e to edit; then select the kernel line and press e to edit again.
• Delete back to "ro", including the "ro".
• Add rw init=/bin/bash.
• Press Enter, then b to boot the system.

Now you do some removing and reinstalling:

  sudo /usr/share/ati/fglrx-uninstall.sh  # (if it exists)
  sudo apt-get remove --purge fglrx*      # (see below)
  sudo apt-get remove --purge xserver-xorg-video-ati xserver-xorg-video-radeon
  sudo apt-get install xserver-xorg-video-ati
  sudo apt-get install --reinstall libgl1-mesa-glx libgl1-mesa-dri xserver-xorg-core
  dpkg-reconfigure xserver-xorg

The first line ran OK, but the second gave me an error, as did the third; still there was a problem removing fglrx packages. So I manually found and deleted every file or directory which had "fglrx" in its name. I used find -iname "*fglrx*" to get a list, then carefully used rm directory by directory to make sure I didn't delete anything important, running find again periodically to see my progress. After that, I was able to run the commands above without problems -- just one minor warning.

Next, disconnect the second monitor.

Then a reboot got me a warning about graphics not being configured, and fglrx being missing. I chose to reconfigure the graphics and reboot. This worked fine, and I had my desktop back with the generic driver, all working fine. Then:

• Hot-plug the old monitor, then do Detect Displays in the Screen Res applet. It will detect the smaller monitor correctly, but shows it as "Off"; Select "On".
• The applet may ask for permission to change some settings (presumably writing to xorg.conf). Agree and authenticate. It didn't ask me this time around, though.
• Reboot, or restart X, and the two monitors will now work happily together.

Now I had a new issue: the top and bottom panels were on the wrong monitor. To change this, right-click on a panel, choose Properties, uncheck Expand, then drag the panel to the other monitor and check Expand again.