Okay, I did some poking around and found this from ATI.
The desktop drivers will work if your force them. Or you could use Mobility Modder to make the desktop drivers look like mobility drivers. I use the the 7.12 Catalyst drivers via Mobility Modder. Its a bit of farting around but it works. The 7.12 drivers really improved things under XP dramatically as did the latest Apple Leopard Graphics Update for OSX.
One thing of note to those who muse about swapping MXM cards around. The iMac uses an integrated CPU/GPU heatsink that is built just for the iMacs graphics cards so if you did swap another one in there, that would be something else you would have to deal with (amongst a host of other issues).
With the latest drivers, the HD2600 has improved considerably in my estimation. Its no graphics ho, but it does its job a lot better than it did a few months ago.