Here's how to use the ATI v1.2 OS/2 drivers with the 2.1 Service Pack.
I read this on the Internet and subsequently used it myself, so I know it
works. This assumes that you already have the ATI v1.2 drivers loaded on your
system and now want to install the OS/2 service pack. If you don't already
have them installed, do so before installing the service pack so that you
can create the diskette that the service pack will ask for. 

1) Put a formatted blank diskette in drive A:

2) Copy the ATIM32.DSC file from c:\os2\install to A:

3) Copy the files from c:\MACH_32 (or c:\MACH_OS2, that's what it was on my
   machine, your mileage may vary) to A:
   This directory is the directory creted by the ATI loader program
   when you installed the v1.2 drivers.

4) Look at the last or second last line in the ATIM32.DSC file, this is
   the diskette label that the service pack install is looking for.
   Use the LABEL command to set the A: diskette label to this value.
   In my case it was MACH32OS2.

5) Run the service pack install.

I ran the service pack install and had to escape with CTL-ALT-DEL after
diskette 13 because I didn't have the video driver diskette ready. The nice
thing was that aborting didn't seem to screw anything up (it just used the
existing driver setup) and on reinstall, the install was smart enough to
skip from diskette 1 to 11 to 13, bypassing everything already applied up
until where I had aborted for lack of a driver diskette. Everything is working
fine. I'm not sure I even had to reinstall, but I wanted to end it cleanly.
It took all of 5 minutes and was worth it for peace of mind (especially
the pleasant surprise of not having to reshuffle the first 13 diskettes
again).

Dean