You realize by installing a new card you uninstalled the previous one, and thus "changed" the old card's drivers? Seems like the culpit is probably drivers. Why aren't you installing the ATi driver bundle, so you don't have to install the CP separately? The bundle is at the top of the driver page, IIRC--one big download, rather than two or three separate ones.
The fact that the Zalman isn't hot is either nice and worrying. Nice, if the RV350 isn't putting out much heat; worrying, if the Zalman HS isn't making good contact with the R350, and thus not drawing heat away from the GPU.
Edit: Also, you can use Pentium M's in desktops? Where can I find more info on this?