A 7850 RoyalKing runs standard at 910 MHz and according to AMD it can go up to 1 Ghz.
There can very well be differences between different HD 7850 GPU’s with regards to how far you can overclock them. That you cannot reach 1200 Mhz does not surprise me, and i also do not recommend that.
That the card won’t run properly in default settings is weird. Did you clean the card lately (get all dust out).
Please let me know your full configuration.