I use the ATI Radeon 8500 in HW T&L with no problems at 1200 x 1024 resolution
I am using the latest ATI driver for Windows ME.
(4-13-7189)
I use the OPF "Auto Detect" option in the preferences and then change the driver from "Direct 3D" to "Direct 3D HW T&L"
Hit play and thats it. Works well.
I have read on several hardware review sites that the Windows XP drivers for the Radeon 8500 are still falling short in performance. Maybe that is the problem. Hopefully ATI will get it right soon for XP users.
