You actually have the same problem as me. Basically, at the time, I could run shaders in Toribash with basic options (reflections, soft shadows, fluid blood). What I mean by "at the time" is the previous versions of Toribash.
Unfortunately, when the most recent version was out, I couldn't run the shaders anymore at all.
I have rolled back my graphic cards, I have updated them, I have installed tools to set up the quality, the speed etc... I have removed and reinstalled the drivers, I have removed few options from Toribash etc etc...
I'm currently still trying to make these damn shaders work, but I think it won't.
For your information, I have an Ati Radeon 9600 Pro, approximatively the same graphic card as you.
Hmmm... So we can safely say that ATI cards require more memory than Nvida ones. ':-/
Originally the problem was with 64meg cards in 3.6x, then 128meg in 3.8 - seems a bit much that a 256meg card is suffering from low memory bugs.