quoted

The errors

[    3.778476] [drm:r100_ring_test] *ERROR* radeon: ring test failed
(sracth(0x15E4)=0xCAFEDEAD)
[    3.781010] [drm:r100_cp_init] *ERROR* radeon: cp isn't working (-22).
[    3.782542] radeon 0000:00:04.0: failled initializing CP (-22).
[    3.784006] radeon 0000:00:04.0: Disabling GPU acceleration

Seem to be disabling GPU functionality. For now, I am interested in
Graphics functionality of the ATI card and not GPGPU functionality.

I will appreciate if you can help me with some information on solving
this problem. Let me know if I should be asking this question on
another forum. Please keep me in CC.

Looks like dri-devel material, added to CC.

As a first guess, maybe the system memory pages accessed by the GPU GART
aren't the same ones intended for this by the VM.

I actually have patches for that (sorry for the late reply).

Try:
git://git.kernel.org/pub/scm/linux/kernel/git/konrad/xen.git devel/ttm.pci-api.v3

But I am not sure if they would make any difference here. You said
you are using KVM-QEMU - you must also be using an IOMMU? Does the IOMMU
give you any errors?