Using the git HEAD drm-radeon-testing merged with 2.6.32-rc7, git mesa and xf86-radeon-driver (if it's relevant), I get either corrupt display or application crashes if I turn on s3tc texture compression.
I'm aware that S3tc may not be supported in the radeon git driver, which is fine, but in that case it should turn it off, not crash :)
I've actually had this problem for a while, but presumed it was simply that there was something odd about my hardware that wasn't supported yet, but happened to try turning off S3tc with driconf yesterday. The behaviour was the same with a non KMS drm (just using the drm kernel modules from the drm-adg5f git repository compiled against a stock Debian 2.6.3 kernel) except that earlier releases resulted in corrupt textures on the screen menu from quake3, followed by a crash at round start instead of the crash at startup that the current checkout gives.
01:00.0 VGA compatible controller: ATI Technologies Inc RV730XT [Radeon HD 4670]
Behaviour: With S3tc turned on, quake3 crashes on startup with a sig11, openarena crashes & has to be killed from a console. Penumbra runs but displays just a single snow texture on the screen in the game.
drm (for libdrm): c20706ffe56cc658a4814f89e391c14f6065ec57
I'm using the libtxc_dxtn.so which ships with Debian unstable: it used to work find with the old r300 driver on my old hardware, but hasn't been used for a bit.
The simplest solution is presumably to just forcible disable S3tc in the r600 driver, although it would be nice to have the old r300 style code back (turn on the extension, but use the external library for the actual texture compression so that there are no patent issues for mesa).
*** This bug has been marked as a duplicate of bug 24047 ***