Now I know I haven't got the most impressive rig in the world, but I figure I should at least be able to run The Witcher 2 on low at a decent FPS. Here are my specs:

Windows 7 64bit
AMD Phenom II N660 Dual-Core Processor 3.0 GHZ
8GB RAM
ATI Mobility Radeon HD 6550

Is there some sort of compatibility issue with ATI graphics cards? Or is my hardware simply incapable of running the game?

Is your issue it won't run at all, or the frames are just really slow? If it's the first I wouldn't blame your hardware, but your card doesn't seem powerful enough to run it, everything else looks fine to me

It could probably run the game but that GPU is really not optimal for gaming.

It'll run, but it's borderline unplayable. Perhaps a graphics card upgrade is in order? I can run several other graphics-intensive games (Crysis 2, namely) on high settings. I'm aware that this game is demanding, but I'm expecting just a bit more.

You can really run Crysis 2 on high with that GPU? I doubt it but if you are then maybe it is a driver issue.

I downloaded the latest ATI hotfix driver, but that only seemed to muddy the textures further, with no real improvements to frame rate. Maybe I should look into upgrading my graphics card.

Are you sure that's a Mobility Radeon you have there? It would mean you're on a laptop, which would make upgrading your video card very difficult, if not impossible.

Try a slightly older version of drivers...Catalyst 11.4 works great for me.
Delete your User.ini file and set your options from the launcher again.

If that doesn't help, try this.

Mobile is likely right, given that the N660 is a notebook CPU.