I think I fixed it. (See NOTE)
(System: XP SP3 with HD 3850 AGP graphics; ASUS K8V Deluxe MBoard)
1.0 Clean Uninstall all ATI drivers
1.1 uninstall all ATI programs listed under "Control Panel/Add or Remove Programs"
1.2 uninstall the graphics display driver "Control Panel/System/Hardware/Device
Manager/Display Adapaters/{Display Card}/driver/uninstall"
1.3 Use DriverCleaner.NET
1.3.1 Download and install DriverCleaner.net (from www.drivercleaner.net)
1.3.2 IMPORTANT (see Note) Click "Tools/Cab Cleaner" on the DriverCleaner menu bar
1.3.3 Repeat 1.3.2 for all listed Cab's.
1.3.4 Select "Select Multiple Cleaning Filters" and then select all services that begin
with "ATI"
1.3.5 Scan and Clean these services
1.3.6 Repeat 1.3.5 until no more services are found on the scan
1.4 Delete files from the systems disk (may need to reboot in safe mode)
1.4.1 Delete any folder beginning with "ATI" from the {system root) directory
1.4.2 Delete and folder beginning with "ATI" from {system root)/Program Files directory
1.5 (ADVANCED, not always necessary) Run a registry cleaner program and reboot.
2.0 Download and install the latest AMD (ATI) drivers: version 11.4 or later.
NOTE: The ATI drivers, including ati2dvag, are classifed by Windows as "system files". As such they come under Windows File Protection (WFP) described in http://support.microsoft.com/kb/222193. An attempt to overwrite any of these files by, say, installing a new version of the drivers, is defeated by the system, and files from the original Windows install (in this case contained in a .CAB file) are used instead. The result is that some files of a newly installed ATI driver suite (those that are in the .CAB file) will be an older version that came with Windows, while some files (those that are not in the .CAB file) will be the newly installed version. These files do not necessarily work together; hence the ati2dvag loop. The basic fix is to remove all ATI files from all Windows .CAB files so old files will not be used instead of the newly installed version. DriverCleaner.net/Tools/Cab Cleaner does this.