Looking at AMD's release notes for the Catalyst driver for Linux (a.k.a. FGLRX), AMD dropped support for the ATI Radeon X300 series GPUs in version 9.4 of the AMD Catalyst driver. So there is no way that xdriver=ati, which selects the closed-source FGLRX driver (ati-drivers package), would work. Your only hope would be the open-source Radeon driver (xf86-video-ati). Unfortunately, from what I've read on the Web recently, recent versions of the open-source Radeon driver and X.Org Server are buggy, so that may explain your problem.
If you can get to a virtual console in the LiveDVD environment, you could try a text installation (see SL Wiki for details) and then try installing the open-source driver anyway, just to see if you get any further. After installing to the HDD, get to a virtual console, login as root user and try the following after updating equo as per instructions in the SL Wiki (Fresh Install - What to do?):
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equo install xf86-video-ati
equo conf update
eselect opengl set xorg-x11
aiglx-setup disable
then cross your fingers and reboot. If that does not work, things get messier. You could use Portage to downgrade the X.Org Server to 1.7.6 or 1.7.7-r1 (Entropy does not have older versions) and use Portage to compile the xf86-video-ati package to match the version of the server you installed. That might, or might not, work.
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emerge --sync
layman -S
emerge -1v =xorg-server-1.7.6
emerge -1v =xf86-video-ati-6.12.6 (or whatever)
eselect opengl set xorg-x11
aiglx-setup disable
You'd also need to merge all the other xf86-input-<whatever> and xf86-video-<whatever> packages you need for your PC (Synaptics or whatever hardware you have), because the X.Org drivers must be compiled to match the X.Org Server.
You'd have to try the various versions of xf86-video-ati to see if you can find one that works. If you can be bothered.