When you installed the latest driver, did you completely uninstall the older one (through the add/remove program)? if not, do it since it maight cause driver interference.
Run DXDIAG and check that your RAM is still all good.
In your ATI control panel, ensure that the VSYNC is off.
set everything to application preference.
The 2 options to watch for are Anti-Aliasing (AA) and Anisotropic filtering. These 2 are extremely CPU hungry.
Post your specs and we might be able to help you a bit more.
My gaming machine:
P4 2.8 GHz
2 X 512 MHz PC3200 in dual DDR mode
Intel D865PERL MOBO
integrated 6.1 MAX audio
Logitech duo MX mouse and KB
ATI RADEON 9800 PRO