You should get a pretty good frame rate in AH2 with your set up, though perharps not as high as you'd get with the nVidia card you're getting rid of. The 9800 XT will be faster in almost every other game. I run the ATI Catalyst drivers, currently 3.10, but will upgrade to the latest, 4.2, when my lazy streak ends. AH1 set up is: 1280 x 1024, AA x6, AF off (application preference), all other settings to maximum quality, vsync on. If you turn on AF you will probably find the map text and text in the radio buffer more difficult to read. I believe Skuzzy recommended AF be set to application preference (off) for this reason. Some folks swear by Omega drivers, reputed to improve image quality, but there is no performance advantage (maybe a bit of a disadvantage) in using them.
In AH2, I've experimented with quality settings, AA, AF, and found they make little if any difference at a given resoultion. The exception being at 1600 x 1200 where 6x AA and 16x AF runs my 128MB card out of memory and frame rates drop into the 40s (tower, clipboard up, map view).
Be sure to uninstall the ATI drivers that come on your system prior to upgrading to the lastest driver.