Pretty much the rule of thumb is that you should install the drivers from the CD so you can ensure you load all the goodies the mfr (Sapphire, Gigabte, Asus, etc) included as there might be additional monitoring software, additional video support, free DVD player, etc.
Then once that's done and you have your system up and running as they wanted you to, then check for stability issues and play with all the included apps.
Then decide your next step, upgrade to the latest drivers on the mfr's support page, or from ATi's main driver page (if you have a BuiltByATi card, then they're the same page).
Now if you don't like the .NET framework (of which there is now 3.0 [avilable from M$]) then you can stick with the basic display drivers, which require no .net but also don't give you all the advantages of the CatalystControlCentre;
https://a248.e.akamai.net/f/674/9206/0/www2.ati.com/drivers/6-8_xp-2k_dd_35179.exe
To get most of the CCC advanagtages (save the AVIVO video stuff then download ATiTrayTols and add that to help give you more things (like geometric instancing);
https://a248.e.akamai.net/f/674/9206/0/www2.ati.com/drivers/6-8_xp-2k_dd_ccc_wdm_enu_35179.exe
Personally I'm fine with CCC and like the added features for video (even though I wouldn't have as much as you since you've got a X1K VPU and mine's a plain X-series.
For CCC you only 'NEED' .NET 1.1, but you should get the latest and greatest you can for the speed and stability boost. 2.0 w/ CCC is much faster than 1.1 and reduces the multiple CLI.exe instances (it's normal to have 1 CLI.exe per output [ie 3] running in your taskmanager/processes list) which can hog sufficient memory in a less than 1GB system. I have peronally have not noticed much difference between 2.0 and 3.0beta though, likely stability and security patches. Also if you properly tweak CCC it's not bad and not much slower. But if you're into getting the absolute fastest barebones OCing system you can, then stick with the ContolPanel basic driver version and skip the CCC. I don't like the .NET portion, but it's a tradeoff for some features. I just was using the CP version of CAT 6.7 (non-public driver) and just upgraded to 6.8CCC and there wasn't a noticeable difference in performane (probably 5% at best if I benched IMO).
Really the first thing to do is get it up and running clean with the CD provided as they intended. THEN learn about the tweaks you might want to look into, figure out what your needs are and then do that. A great source for information is Rage3D's forums, they have section dedicated to Catalyst tweaking, and Catalyst troubleshooting.
Also check out Tweakguide's Catalyst guide it covers Control Panel and Control Centre version and is update with just about ever version of the Catalyst drivers. There's alot of handy information in there including how to tweak both version to perform better;
http://www.tweakguides.com/ATICAT_1.html
Good Luck! 8)