I think Ati suffers a bit from being part of AMD as far as software is concerned. AMD has always done x86 - you don't have to develop software for that, it's a pretty fixed standard, all you need is support for the latest additions and a compiler that actually uses it (i.e. not the Intel one). Hence AMD has been able to get away with a small software team.
This lack of priority on software runs over onto ATI.
Graphics and gpu's are very different - they change so much more rapidly so if you want devs to use the features you've got to give them a lot more help. Nvidia seem to have *got* this and have a huge software dev team, AMD are still in denial - all this "We just produce the hardware, it's up to devs to write the software not us" doesn't really work. Given the choice of having it all handed to you on a plate or having to write it all from first principles - well that isn't a choice is it?
I think you are overlooking a few factors:
- AMD was interested in merging with NVIDIA, but due to the company negotiations (CEO spot if my memory serves me right) that failed - that would have been the best for AMD and probably quite good for NVIDIA;
- ATi before being bought was already far behind NVIDIA in devs relations and their drivers didn't have a good reputation - If anything the ATi drivers improved since;
- At the time Intel launched Core 2 while AMD had that Barcelona debacle with TLB bugs and problems getting decent frequencies (imagine if the original phenom was more like Athlon II, which is pretty the same performance on a per clock basis, and could easily reach 3.5-3.6 GHz instead);
- ATi itself came from problems with X1800, which was late, and even though the X1900 was quite a good card on a performance level, coming late never help. And the X1600 wasn't a really answer vs the 7600 GT;
- Not only ATi had a previous bad generation, the first generation released after being bought, the X2000, was quite bad and LATE again!
Now:
- AMD got some of the processors problems sorted out - Phenom II and Athlon II are much better than Phenom I, even though they fall short of iCore, and AMD even released a X6 in the 45nm process that seems to be in the same power envelope of Deneb and OC to 4GHz (AMD is still losing badly except in the lower end);
- AMD got rid of their Fabs;
- In the GPU side ATi shake the "GPU world" with the 4000 series by bringing $500 performance to $300 mark and $300 performance to under $200 mark and actually was the first to release a DX 11 GPU;
- AMD is sampling the first APUs and have announced the Fusion Fund (which is something very unusual for AMD and we can only hope it means AMD is improving their devs relations).
If we look at all those failures and problems is amazing they are still around and it isn't hard to realize AMD had to prioritize and solve the problems it plagued them.