I am at the very least, hesitant about providing the path I took to get this particular chip and board working. Please read the next few lines carefully.
I have a tremendous respect for the work of L3top on video and audio detection and driver installation. If you have an issue please at least get his take on the problem. If nothing else the information will assist him in improving the way LinuxMCE makes more hardware plug and play in the future. I chatted with him and ran a few complete reinstalls trying to get this card to work OOB. After researching the issue much more I learned prior to 1004 Final, there were few test cards made available to get the NattyBackport method of flgrx installation ironed out, and that the 4200 HD is on the lower end of the supported list of GPUs under flgrx.
This system is also my core/hybrid and with just under 3TB of media, I have zero HD files. I watch FTA television and rarely rip DVDs as I don't mind a smaller file size .avi I can download quickly. Any driver that didn't crash would have made me happy, even in UI1 640x480.
To summarize the solution I used, I read through the Utils.sh and saw where drivers are given a priority value. I believe flgrx was given an 8 and Radeon a 5. This is in place to give LMCE that 'intelligence' to use the best available driver for your hardware and to sort out which chip to use when multiples are present.
located flgrx and change the value from 8 to 4
save and close, ctrl+c to get back to prompt
*Notice the above section is not formated to appear as code, do not copy paste things like this. Take the time to read over the Utils.sh so you understand what is going on. #Commented out, sections are like notes left behind by the author that let you follow along with the idea and purpose of a given section or command. Code contributers for LMCE have always been outstanding at using them in my opinion.