I'm not sure of your specific problems, but I myself have been having mainy issues with the 8.6 driver. The only thing I recommend is trying Ubuntu and the repository fglrx driver (xorg-driver-fglrx-envy)... I've not gotten any of the recommended OSes to even work properly with my system.
I think Ubuntu is the easiest to deal with out of all the distro's I've tried.
Note installing the driver from the amd website has always resulted in DRI problems or even complete crashes of the X server as you described. Generally I think it's best to at least generate a distribution related package, as many times it works better than running the install script.
I've only gotten the Stream SDK to work by installing Ubuntu 8.04.1 LTS AMD64 Desktop and then installing that repository. Then install libstdc++5 and the SDK packages and you should be set after you set the environment variables one way or another. As for myself, I'm hoping to use my onboard HD3200 in conjunction with the HD3870 and the dual display doesn't work well at all with 8.6 drivers... So since I've had 0 problems with the 8.8 drivers, I'm just patiently waiting for the new SDK release which will support 8.8.
So if nothing else works, just wait till next week when they release 1.2. As 8.8 seems to bring more stable support to the RV670/RV770.
I've installed Catalyst 8.8 on BOTH openSuSE 10.2 & 11.0 with BOTH the 4870 & 3870 and haven't had any problems with either. Unfortunately 8.8 doesn't work with the SDK. As far as distros are concerned, I've noticed some saying they've had succcess with Fedora - but which version?
I've tried Fedora... it's okay... I don't remember ever getting it all working, but I think I was just having trouble finding all the dependencies and it's overly involved to do so on Fedora... Although my friend has made the suggestion that I'm just used to Ubuntu.
However, I think the problems experienced with the RV670/770 are between the driver and X. Since you've had success with the 8.8 driver, I recommend choosing the distro that you are most comfortable with, and waiting for the 1.2 SDK release in the next few days. It stinks, but I'm waiting too... As I experience somewhat random graphical corruption in GNOME with a dual display setup.
It's not so bad though, like I said 1.2 will support catalyst 8.8 which I think was a big milestone in the driver's development (the next being support for X.Org 7.4 and X Server 1.5.0). We'll also be seeing 1.6.0 with the DRI enhancements we've been waiting for, so I hope the Stream SDK team follows with support quickly after this next milestone, as I believe this is a great opportunity to flex so linux muscle and make some create tech demos. I'm still drooling about using my 3870 as a computational backend for my procedural engine.