Needs to be from the 2.6.31 series or better. Using 2.6.31-rc8 right now. To enable KMS, you have to enable:
Device Drivers > Staging drivers > uncheck "Exclude staging drivers from being built"
Device Drivers > Staging drivers > Enable modesetting on radeon by default
Add the x11 overlay:
layman --add x11
Create ebuilds for some new packages (optional)
xf86-input-evdev and xorg-server have new beta versions that aren't in the tree or the x11 overlay yet. If you want to use these instead of live git ebuilds, make ebuilds for xf86-input-evdev-126.96.36.199 and xorg-server.188.8.131.520.
Unmask the necessary packages
Here's what I added to my package.unmask:
# make these =-9999 if you're not using the beta versions
Note that most of them are "<package-9999", which will unmask all versioned versions, but not the live git version of the ebuild. Live ebuilds are a pain since you have to update them manually, so avoid them when possible.
Really long compile:
I think these need to be installed first, so let's make sure:
emerge -uav1 libdrm xorg-server mesa
emerge -uDNav world
At this point, it should probably work - reboot into your new kernel and find out.
Some packages (pulseaudio, maybe others?) don't build against these versions of the X libraries. They fail with missing header errors, so I think it's probably just a build system issue, and they should both be relatively easy to fix. Still, you've been warned.
When I initially finished these steps, X wouldn't output anything when I tried to run it, and I had to ssh in to kill it. Also, I kept on getting strange errors in my /var/log/messages along the lines of:
Aug 30 11:32:01 3vil [drm:radeon_ib_schedule] *ERROR* radeon: couldn't schedule IB(5).
Aug 30 11:32:01 3vil [drm:radeon_cs_ioctl] *ERROR* Faild to schedule IB !
Depressingly enough, I have no idea what I did that fixed this. The problem persisted through several reboots, and then went away for no reason that I can discern. :(
Edit 8/31: Redo package.unmask.
Edit 9/10: kms USE flag is on by default now, so we don't have to enable that. Redo package.unmask again.