Seems like I remember that Ati drivers can be difficult to completely remove from the registry. Try uninstalling the drivers (switch to Standard VGA in the meantime), from Windows Explorer delete any Ati folders leftover from incomplete uninstalls, run a registry cleaner if you've got one. Install Directx 9 Before you add back the new ATi drivers. Then try the latest version of the Catalyst.
If you then get an error only in a particular game, check it's website for patches - or, if it's a must-have favorite - install the directX from the game's cd.
Praying and prostrating yourself before the PC divinities might help, too
. . . Gary
[Edit - hi pam, just saw your post. I still remember that Ati uninstall thread from a while back. I can't remember if that thread was for XP or not = maybe it would help in this spot, too. . . - - - I don't usually jump in to threads over here, but I had some extra time tonight waiting for a file transfer to finish here at work!]