OpenGL vendor string: ATI Technologies Inc.
OpenGL renderer string: RADEON X300/X550 Series Generic
OpenGL version string: 2.0.5814 (8.25.18)
OpenGL extensions:
GL_EXT_texture_rectangle,

This driver supports both 2D and rectangle textures. The hardware does as well. If mode 1 does not work in GEM then that looks like a driver bug to me.