Quick fix: Boot with Last Known Configuration
Instructions: Keep hitting F8 after BIOS/POST and before Windows boots. It will bring you to a menu that you would normally use to enter Safe Mode. Instead, select Boot with Last Known Good Configuration.
I had booted multiple times while trying to get my PS/2 keyboard adapter working, but I had never logged in successfully. I don't know if this will work if you logged in and it made further changes, creating a new last state.
This is a real showstopper of a bug (prompting my first visit to these forums). I assume it is caused by not uninstalling the old drivers first and/or the display drivers. I am still going to try to install the new drivers so I will let you know if I can also get it to work on the second try like Shamis.
Tip: Enable Remote Desktop Access so that you can log in from a second computer if it becomes neccesary.
Install Method (2nd try):
1) Start the uninstall for ATI Catalyst Install Manager.
2) Choose to Express Uninstall ALL ATI software. When finished, choose to reboot.
3) Make sure no unneccesary applications are running, especially anything using sound.
4) Proceed to install SB 9.12 package. When finished, choose to reboot. Your USB mouse and keyboard should continue to work fine this time. You should be fine after this point, but I will finish the instructions for the sake of consistency.
5) Proceed to install RAID or ACHI 9.12 package as appropiate. If you don't have a RAID array, you are most likely using AHCI for Hard Disk Storage. When finished, choose to reboot.
6) Proceed to install Display 9.12 package. Unselect Folding@Home unless you would like to participate in that program. Note the new ATI Drag'n'Drop Transcoding feature. When finished, choose to reboot. You've lost any custom resolutions you may have had, so you need to set that up again. Set all your other options up and you're done.
11:47 PM by