I had this problem with the latest ubuntu/mint. Make sure xserver-xorg-video-ati package is installed properly and check sound settings output.
My only fix is to edit grub and add a kernel flag. Use your favourite editor and edit /etc/default/grub.
# sudo nano /etc/default/grub
Tweak the 11th line.
GRUB_CMDLINE_LINUX_DEFAULT="quiet splash"
To this:
GRUB_CMDLINE_LINUX_DEFAULT="quiet splash radeon.audio=1"
Save an exit (ctrl + x for nano.) Reboot and try. Good luck.
You can also try installing the awful FGLRX package. I wouldn't bother though. Nasty stuff.
http://www.rublik.com/5168ffcb36e2fb4c6f017a63
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