I managed to make it work on my machine.

I actually noticed that fglrx code never puts UPLL to sleep like we do.
So I commented out all WREG32_P(CG_UPLL_FUNC_CNTL, UPLL_SLEEP_MASK,
~UPLL_SLEEP_MASK);

After that initialization finishes successfully and I'm able to watch my .mkv's
with decent speed.

adonai@Heaven] % mpv --vo=vdpau --hwdec=vdpau Zoku\ Sayonara\ Zetsubou\ Sensei\
-\ 06.mkv           
Playing: Zoku Sayonara Zetsubou Sensei - 06.mkv
 (+) Video --vid=1 (h264)
 (+) Audio --aid=1 --alang=jpn (*) (aac)
     Subs  --sid=1 --slang=eng (*) (ass)
 (+) Subs  --sid=2 'Zoku Sayonara Zetsubou Sensei - 06.ass' (ass) (external)
Trying to use hardware decoding.
AO: [pulse] 48000Hz stereo 2ch float
VO: [vdpau] 1280x720 vdpau
[vo/vdpau] Compositing window manager detected. Assuming timing info is
inaccurate.
AV: 00:06:16 / 00:23:59 (26%) A-V:  0.000

Exiting... (Quit)

What kind of further testing can be done from my side?