this might also be my bug on a ThinkPad T60, ATI mobility radeon x1400, as it looks pretty exactly like in the youtube video on the first post.
... but two things differ:
1. I got the pink errors and distortion not on an external display, but on the default laptop screen.
2. overall performance of the GPU has degraded from karmic to lucid.
I posted a bug description here: https://bugs.launchpad.net/ubuntu/lucid/+source/linux/+bug/545096/comments/38