that is a good value.I ran the 3D demo in hurt me plenty and get a fps of 40-41.
Also your Xorg.0.log looks good.
It is not needed to install anything else, it should run out of the box.
I don't see, why it does not work for you.
One thing I found in Xorg.0.log:
Maybe in /etc/X11/xorg.conf you could add(II) RADEON(0): Detected total video RAM=32768K, accessible=65536K (PCI BAR=131072K)
videoram 65536
after the line
Driver "ati"
Apart from that, no idea at moment...
Concerning keyboard:
On another computer, I encountered strange keyboard-behaviour caused by "xsetnumlock", that is launched from /root/.xinitrc
I will remove that line and rebuild the iso somewhen this week.
If someone has the same problem, try to remove that line with leafpad.
Mark