It sounds like the xvba library in catalyst was just updated and no longer supports your hardware correctly. I don't think AMD ever said it was supported, so it wouldn't surprise me at all if they just broke it.
Now, with Catalyst 10.10 (and their VC-1 codec installed), my H264 and VC-1 encoded videos are using about 40%/50% of my CPU almost all time...
Cheers
p.s. (being a bit off-topic): Another problem I've found in Catalyst for Linux (since Cat.10.7) is the fact my Mobility Radeon HD2600 isn't loading PPLIB properly... But that's a minor problem for me compared to have H264 video decoding by hardware...
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