Unfortunately, it looks like this fix may not work on 8.1 models, for which the firmware update actually works…
As far as I'm concerned, I've tested this method on a 2008 24" iMac, which I've replaced with a Mini.
I was not worried to try this "make or break" fix since I consider the iMac to be unsellable as is – I mean, interested buyers are super pleased to discover you must use the kext fix after every system update (OS X + security), especially as they tend to buy one of those old Macs because they stand the test of time. Hands up – Oh really?
Flashing took quite some time but… it ran as expected but updated absolutely nothing, it just re-flashed the same version of the ROM (113-B2250L-259). It actually feels quite weird ATIFlash moved forward instead of displaying a message telling you don't need to do it (as expected for the bootcd with the old rom).
I had just forgotten the firmware update applied and that I ran it at the time it was released. How silly of me.
By the way, the code provided for the bootcd config and autoexec files absolutely failed on this model. Twice. I was sure there was no error in there so I had to find an alternative way to get a rescue CD – sorry, it was weeks ago and I don't remember how.
Also, I feel like using a Linux Live CD/DVD (like Ubuntu for instance) + Linux ATIFlash and the dumped rom would be a lot easier for a lot of people willing to take the jump.
Result: nothing. Freezes, again and again and again.
Anyways, since the 10.6.2 kexts were creating UI problems in Yosemite, especially in Settings (like weird dimensions for some panels, rendering them unclickable hence unusable), I decided to update to El Capitan to check whether this re-flash could somehow have any meaningful impact with El Cap's AMD kexts.
The update just failed. To sum things up, OS X hung after login and would not move forward following the install. It was not even possible to use the Recovery Partition to re-install El Capitan…
As a consequence, I took the nuclear road and erased the iMac HD using a Mavericks install on an external HD – those external installs have proved insanely useful over the years for me so it may be a good idea to create one. Reinstalling from a Time Machine backup was out of question as I didn't want El Cap to deal with the "kext fix legacy" – I didn't even import apps + documents from TM afterwards but I guess that won't be a problem if you want to do it.
I grabbed Snow Leopard's install CD, updated to 10.6.8 then updated directly to El Capitan (10.11.3). Needless to say a fresh install of OS X felt really really fast and responsive. And it felt very stable too!
However, I can't currently confirm re-flashing + fresh install did the trick because it's winter and I've experienced those freezes mainly in summer – which is the reason why I first went with SMCFanControl instead of 10.6.2 kexts.
I have good hope freezes are behind and I'm wondering if updating Snow Leopard to 10.6.8 with the newest ROM is not a key to solving this problem.