I have reported this as https://bugs.launchpad.net/ubuntu/+source/xserver-xorg-video-ati/+bug/187967
This regression bug in ubuntu gutsy had the same workaround for me as https://bugs.launchpad.net/bugs/148408 (freedesktop bug 13994) so the root cause might be the same. Then again, it might not. Until that is clear, I believe it makes sense to have a separate bug report.
The latest version of xserver-xorg-video-ati in gutsy has a number of problems that were not present in the latest feisty version.
This one is about video output being a blue box instead of the moving images for mplayer, totem, xine and all players I tested. The sound played fine. Downgrading to feisty xserver-xorg-video-ati from feisty on an otherwise gutsy machine.
situation changed but still not fixed with latest driver: https://bugs.launchpad.net/ubuntu/+source/xserver-xorg-video-ati/+bug/187967/comments/1
There is only one video overlay and it can only be used on one crtc at a time (either the internal panel or the external monitor). In dualhead mode the overlay will follow the video window. In clone mode you have to choose one head or the other using the XV_CRTC attribute.
xvattr -a XV_CRTC -v 1
xvattr -a XV_CRTC -v 0
This certainly is/was a bug. In the gutsy version of the radeon driver, there was *no* video playback possible at all. Thus a regression from feisty.
If the blue box on the second monitor of a clone setup is to be expected, then that only means this regression has been fixed in the latest packages from tormod.
Changing resolution from NOTABUG to FIXED.