Wow, I can honestly say that UT ROCKS BIG TIME on my Radeon. I don't have the AIW. I have the 64 meg VIVO retail. I had a Voodoo 3 before this and played UT in Glide mode. I went for the Radeon upgrade, and was prepared for a big disappointment in UT after always reading how bad it was in D3D. I was totally blown away. UT is so friggin smooth and gorgeous I couldn't believe it. This is @ 1024 x 768 x 32 all options on and set to max quality. Completely blows away the V3 in Glide. I also tried the OpenGL version with the high res S3TC textures and Loki patch. Even better! Absolutely stunning.
I don't have any DX8 apps (are there any?). I cant see why anyone would expect DX7 drivers not to have problems with DX8 apps. I also cant comment on AIW issues as I don't have one. However, every game I play (UT, Q3, HL, Q2, Serious Sam, Rouge Spear, STEF, etc...) plays perfectly.
I hope the new DX8 drivers are out soon and correct the problems you are having. It will be interesting to see if ATI can get their driver reputation cleaned up.