DirectX9.0c Error with newer ATI Drivers

I have had an on-off problem with a my newish ATI card (Sapphire 1950Pro) and DirectX, in that games and the DxDiag tests crash if I try to run them.
Specifically, the DxDiag Direct3D tests fail as follows:
HW v7 Test fails at Step 8 with generic error: x80004005
HW v8 Test fails at Step 8 with generic error: x8876086c
HW v9 Test fails at Step 8 with generic error: x8876086c
I have tried the following:
* Falling back drivers;
* De-installing and re-installing drivers;
* Driver version regression;
* Registry First Aid
* Norton's WinDoctor scans
* Alternate drivers (Omega v38360) - which "fixes" the problem, but is unstable in game play;
Help ! (please)
I have attached a Hijackthis log and a dxdiag scan output file.
System Spec:
AMD Athlon 3200+
2GB DDR Ram
Sapphire ATI x1950Pro 512MB
Windows XP Pro SP2