Error while configuring display settings "module ati_r500 does not have a ati_r500 ModuleData data object"

Issue

• "Error: Id "x" respawning too fast" message observed while booting system in runlevel 5
• Configuring display settings using "system-config-display --reconfig --noui" command fails to generate an xorg.conf file.
• Running "Xorg -configure" shows following errors:

(EE) LoadModule: Module ati_r500 does not have a ati_r500ModuleData data object.
(EE) Failed to load module "ati_r500" (invalid module, 0)

• System boots with a black screen and a cross as a mouse pointer instead of Gnome Desktop after installing Red Hat Enterprise Linux 5.