Hey there, welcome to TSF,
I would say to try the catalyst 7.1 drivers if you can get them. Any game on the source/HL2 engine including TF2 should do OK on an X800 at medium to low settings.
Another thing to quickly check is that your task manager is not showing unusually high CPU usage.
Finally, see if you can pop open your console and type in "net_graph 3" (without quotes) and see if its your ping or framerate thats causing the lag (just to make sure it isn't server latency).
EDIT: I have just been looking around, and you aren't the only one with this type of problem.
http://forums.steampowered.com/forum...d.php?t=627025