Installing Catalyst drivers will result in 16-bit colors with heavy "banding".
Tried 10.3 and 10.4 (mobility) with same result

After some research (google) it seems many others are having the same issue. Perhaps the (iMac) HD4850 is custom made for Apple and require special drivers?
My config: Late 2009 iMac 27", i7, 4gig ram.