So, using the GUI, I went to the System Menu, Administration, Hardware Drivers, and I disabled the driver there, rebooted, tried the memory test, and it rebooted, tried the recovery mode, got the garbage, hit Ctrl-alt-delete, and then it worked correctly all the way. Lots of text output, all the VTs working.
I went back to the Hardware Drivers, and now I get the confusing part: It says "Proprietary drivers are being used to make this computer work properly"
It lists ATI Fire GL, and has the "Activate" button enabled. next to the button, it says "A different version of this driver is in use".
My other Ubuntu system has an old NVidia card, and it always had only 2 choices - either use or not use the proprietary driver. This system seem to also have 2 choices, but they are use one or another proprietary drivers, and we'll leave it to you to figure out which is which.
Is this normal? Should I go deeper and remove all the ATI drivers? Everything seems to work the same as before, fwiw. I even still have the same Catalyst Control Center.
My motherboard came with ATI onboard, which I disabled. Maybe there are drivers left over from that?