Then remove the current windows driver AND THEN install the updated driver from the link jonas provided. When windows alerts "new hardware found" stop windows from installing the standard driver before you install updated one
Having the exact same problem with different graphics card - Radeon 9550. LFS running fine for more than 1½ year, but a some days ago it developed this problem. Maybe while updating to patch W?
Tried updating display driver, but still refuses to run. Maybe a new bug introduced?
OK, lets get deeper into it. What VGA drivers version are you using? Did you try to update DirectX? Go for Start>Run>dxdiag. Check out the Display tab for anything strange and do the same with DirectX files tab. You might want to disable and re-enable Direct3D acceleration on Display tab to ensure that it isn't just some sort of a config that screwed up.
Ok, tried the latest available driver, 3.8 something, no go. Just tried some "failsafe" cfg.txt and card_cfg.txt files (attached), no go. Did an update to latest (Feb. 2007) directx, no go. Did a dxdiag, no problems found and all tests succeded. Attached the dxdiag file too. Whats next?
Possilbe problem might be in your Omega drivers. I'd go, uninstall them completely and get an official ATi Catalyst driver release. These hacked drivers are likely to cause a lot of weird stuff...
Edit: Here is a Direct link for the latest avalable drivers for Radeon 9550
The driver before was an official ati driver. Remember, problem is also isolated to LFS. rFactor, IL-2 1946 and FS-X works perfectly now, as they did before. Nor did I do any system changes.