I have found a satisfactory solution for the problem!
Credits go to "Super Grub2 Disk" open-source software!!
It is a bootable USB (or any device) disk which has an option in particular:
"Detect any GRUB legacy menu configuration file (menu.lst)"
It took me a little while to figure out how to tune in my system and adjust SGD's settings in order to finally successfully boot the Ubuntu 6.10 Edgy !
Later, I have figured out which exactly minimum parameters are required for grub2 to make the successful boot (see the original in my question above):
legacy_kernel /boot/vmlinuz-2.6.17-12-generic /boot/vmlinuz-2.6.17-12-generic root=/dev/hda2
Note, '/boot/vmlinuz-2.6.17-12-generic' is written twice intentionally, I have checked, having it written only once, it would finish booting process before loading the image (after having loading the kernel).
I have then tried to use the firstly used tool "Boot Repair" and it's "Grub Legacy" Grub option, but it did not made the system multi-boot aware.
I have also tried using "Super Grub2 Disk" to somehow automate the menu repair process, and, again, could not made it being multi-boot aware.
The only ultimate solution I see so far is either manually editing /boot/grub/grub.cfg each time grub is updated, or edit "os-probe" script, so that when it would detect "/dev/hda*" partition, it would automatically use "legacy_" commands.
As the result, I've been able to install the proprietary driver and notice the significant performance increase!
For example, TuxRacer became having no lags even on highest resolutions (on highest - only slight overall speed decrease), while when was using Ubuntu 12.04 with it's native drivers, there were lags even on lowest resolutions when you are on a very open space.
Another 3d-game I have tried is java browser based SpiralKnights. It became working almost totally stable with no lags on glitches, while on 12.04 there were glitches, lags all the way long.
Not even mentioned in details, that I've been able to run the latest FireFox (with even no installation/compilation needed, just download & run), flash 10 version and latest java which made it a totally modern Internet system and already proven that the efforts were worth of trying.
I would be further trying to install and use Blender and try to render some great animations.
Similar threads on ubuntuforums with no solutions:
September 7th, 2011
Dell D600 Downgrade to Xorg 7/Dapper no flash
July 29th, 2010
installing Ati radeon 9200 drivers
November 22nd, 2009
Please help me downgrade Xorg