Well- This sounds like a problem I had with my original Radeon 7000 - I also tried the TV out function, which caused a random reboot and a stretched and strange screen.
Soon afterwards, My 3d applications would crash terribly- the game/app would continue running, but all I would be able to see is a garbled yellow screen.
I could usually recover by quitting the application- HOWEVER- if I did it twice, it irrecoverably corrupted my desktop (cursor was a mishmash of squares, resolution really low, couldn't see anything, just.. a mish mash of squares.
I didn't really do any in-depth troubleshooting, I just ended up replacing the card with a PCI 9250, which I have to say worked ok for that computer.
I still have the card, wether it works, however, is another issue.