Removing the ATI Catalyst context-menu entry
Open Regedit.exe and navigate to:
HKEY_CLASSES_ROOT \ Directory \ Background \ shellex \ ContextMenuHandlers
One of the sub-keys is the entry added by ATI software. (Usually named ACE)
Select the ACE sub-key, and then backup the key by exporting it
Delete the ACE entry, and close Regedit.exe
The only handler present by default (in a clean XP installation) is the New handler.
If you find any additional sub-keys there,it may have be added by third-party applications.
Usually, the software that comes with your graphic card adds entries to the above location
More
HERE.
It should also be listed in ShellexView with the name ATI or ACE or some such.