I have this issue as well iMac 11,3 27" i7.
For me, this was not only in the Lions, it was happening in SL (actually worse). My temporary solution to allow me to keep working was to get rid of the (System/Library/Extensions/) ATIxxxx.ktext's.
This completely stopped all artifacts and crashing, but of course because this disables acceleration, everything is choppy and things like screenshots don't work.
I would flash the card in a minut but I already have a partioned drive so I can't install boot camp.
I am completely shocked that either Apple, ATI, or even some sympathetic programmer can't or won't come up with a Mac version of this mod. It does not seem like it would be that big of a challange to port over. Not even some command lines or three?
Anyway, quick question to author of the fix...
If I boot using an external drive that has the boot camp Windows partition will I be able to access the hardware?
Or does it have to be the internal drive?
Thanks very much in advance,
A