Before proceeding, please make a System Restore Point using Windows System Restore [Start > Programs > Accessories > System Tools > System Restore] and download and install the following:
CCleaner (Not compulsory, but highly recommended)
Driver Cleaner Professional
Also make sure to have .NET 2.0 at a minimum installed if using Catalyst Control Center.
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Removing old drivers
STEP 1. Navigate to Add/Remove Programs [Start > Settings > Control Panel > Add/Remove Programs] and uninstall the ATI Catalyst driver components in the following order. Don't reboot before I tell you to!
1) Catalyst Control Center / Ray Adams ATI Tray Tools
2) ATI Display Driver
3) ATI - Software Uninstall Utility
STEP 2. Reboot your PC and go into Safe Mode when your PC is rebooting, by tapping F8 during the black screen with ~4 or 5 lines of text which comes before the Windows loading screen, and then selecting 'Safe Mode' as the startup type, and 'Windows XP' as the Operating System.
STEP 3. Log on to an administrator account (doesn't matter which one, but I'd suggest you use your own), and once at your desktop, start Driver Cleaner Professional. In the 'Cleaning Selection', tick 'Select multiple cleaning filters' and choose everything starting with "ATI". Then press the "Start" button, and after the program is done cleaning, close it.
STEP 4. Start CCleaner and go to the 'Issues' section. Tick all of the filters, and run the scanner, remembering to create a registry backup when it automatically prompts you to! Run the scanner again as many times as needed until nothing shows up at the screen, creating a registry backup each time. Alternatively, you can use another registry cleaning program if you don't find CCleaner appealing.
Step 5. Reboot and install your new driver in normal mode as you usually would.