Could you try increasing the memory to 4, 8 or 16MB in xorg.conf by adding a VideoRam option in the Device section?
Ram sizes 2048, 4096 result in corrupted display, larger ones result in sigint 11 crashes of the server.
I just noted that the last commit of the xf86-video-mga driver at http://gitweb.freedesktop.org/?p=xorg/driver/xf86-video-mga.git says: Default mode on G200SE of 1024x768 @ 16bpp.The poor thing has so little VRAM that you can't do any bigger than 640x480
at 32bpp, so in the interest of having a reasonable screen size...which implies that there is no error in the ram detection, but it is indeed so low.
-- Stefanos Papanicolopulos