There is a problem being reported that ATI X19xx cards with 256 MB of RAM are having lock ups. It seems to be more of a PCIe issue (vs AGP), and seems to be related to chipset/driver issues.
I was reading a few forums and found a nice post that may help you fine tune the card:
Returned 158.42 if that helps any. I suspect it is a combination of ATI's 6.11 and the current 5.91 beta 2 that is keeping things from where they should be. Wouldn't be surprised if the next beta due out Feb 1st (unless I've read it wrong) from Stanford and ATI's 7.2 drivers don't take care of this perfectly.
Tried to restart the system so that the GPU version would run as a service and got this as part of the log file:
Entering M.D.
[03:11:19] Will resume from checkpoint file
[03:11:22] mdrun_gpu returned 99
[03:11:22] GPU initialization failed
[03:11:22]
[03:11:22] Folding@home Core Shutdown: INTERRUPTED
[03:11:25] CoreStatus = 66 (102)
[03:11:25] + Shutdown requested by user. Exiting.
Folding@Home Client Shutdown.
I then proceeded to start it in a command prompt without incident