Before I answer this, let me make a few points. First, understand that the question of how man came to be on this earth is separate from how long ago it happened. I am not going to deal at all with the age of the earth or how long man has been around, merely how I think he got here.
Second, I would strenuously deny that literalism equals fundamentalism. No Catholic can ultimately say that we shouldn't take biblical texts literally - our faith is founded upon a very literal interpretation of many texts ("Thou art Peter, and upon this rock..." "This is My body"..."Whosever sins you forgive are forgiven..." "Unless you are born again by water and the spirit..."). We absolutely cannot rule out simple literalism as a way to intepret Scripture. Especially when, as the CCC and longstanding tradition maintain, all interpretations of Scripture rest upon the literal (CCC 116).
When Catholics scoff at taking the Bible literally (and I'm not saying Mr. Mulligan does, but some people certainly do), what they are really saying is that there are some parts of the Bible that it is okay to take literally and other parts where it is not. I do not deny this is sometimes the case, but by and large I think the Bible is best taken literally in all its parts, if for no other reason than I would rather err in taking Genesis too literally than in not taking it literally enough. Some parts of Scripture certainly are allegorical - but where does Genesis fall? Is Genesis 1-3 to be taken literally or not?
Among all the Scriptural texts about creation, the first three chapters of Genesis occupy a unique place. From a literary standpoint these texts may have had diverse sources. The inspired authors have placed them at the beginning of Scripture to express in their solemn language the truths of creation - its origin and its end in God, its order and goodness, the vocation of man, and finally the drama of sin and the hope of salvation. Read in the light of Christ, within the unity of Sacred Scripture and in the living Tradition of the Church, these texts remain the principal source for catechesis on the mysteries of the "beginning": creation, fall, and promise of salvation (CCC 289).
This passage is relatively non-committal- it leaves room for divergent views: so long as one does not deny the "truths" of creation, the CCC seems to leave it open as to how literal or figurative the narratives of those truths are. It does say plainly that Adam and Eve were real people:
The Church, interpreting the symbolism of biblical language in an authentic way, in the light of the New Testament and Tradition, teaches that our first parents, Adam and Eve, were constituted in an original "state of holiness and justice". This grace of original holiness was "to share in. . .divine life" (CCC 375)
The last authorative declaration on evolution from the Magisterium was Humani Generis (1950), in which the following positions were clarified with regards to evolution:
Evolution can be said to have occurred with the material from which the human body comes, but it can by no means be taught as certain and must be put forth as only a theory (36).
The human souls of Adam and Eve, and of all subsequent humans, are immediately created by God; the soul did not evolve (36).
All human beings take their origin from an original pair or two human beings (Adam & Eve) and that Adam and Eve were real, historic individuals (37).
Genesis 1-11, though containing metpahoric imagery, are nonetheless to be taken as historical accounts of true events (38).
So, how do I think it happened? Well, here is my belief. I think (of course) that the world was completed and finished prior to the arrival of man. When everything was ready, I imagine God forming a body out of the sand or mud, kind of like it would look if you were to bury yourself in sand at the beach. Then I think the sand-dirt form was sculpted until it looked perfect, just like a real man, kind of like a statue or perhaps the terra cotta men found in the tombs in China. Then, when it was perfectly formed, I think God breathed on it and the dust became flesh, life came into the nostrils of the man and he became alive. I think Adam was fully grown when he was created, and leapt up with a sudden realization of consciousness and self-awareness, to gaze about and behold the unfallen creation for the first time straight from the hand of God. What a sight it must have been! I believe he had an immediate awareness of God that was infused and an unhindered communication with Him. I think the whole process was very quick, perhaps but a few moments or several minutes (groundless speculation, of course).
So, I guess you could say that I literally believe he was formed out of the dirt and given life. Again, I don't know how long ago this happened, but this is what I think it looked like. This is just my imagination, of course - who really knows what it "looked" like.
So there you have it. I'm not going to spend a lot of time defending my imaginative vision of the creation, but I know that many saints and doctors have believed in an immediate creation of man. Some have speculated that each "day" of creation was 1,000 years, but I don't know of any who explicitly taught that man himself evolved over a long period of time.
An interesting point regarding the age of things. If Adam was created full grown (as most theologians who believe in an immediate creation would agree to), then suppose that five minutes after he was created, a doctor walked up to him and took a look at him. Suppose I asked the doctor, "How old does this man look to you?" The doctor would look at Adam's full stature, his developed limbs and (possibly) facial hair, and taken altogether might say, "Thirty years old." Indeed, he would appear that old, and perhaps he would have the height and stature of a thirty year old man. Medical tests of his biological systems might even confirm that he was an extraordinarily healthy thirty year old man. But he would be only five minutes old.
In the same way, the fact that light from a star supposedly takes billions of years to reach here or a certain strata of rock is supposed to be one hundred million years old doesn't concern me - if God created things complete, they would look complete. Light would be created in viae from the star, so that it doesn't necessarily need a billion years to get here. A star a billion light years away could have been created with its light already in course, so that it would have been visible to the first man the moment of his creation - mountains are created complete, so that if you were to ask how long it would take for the continents to push them up, well of course millions of years if they were created that way, unless they came forth from the hand of God immediately and completed to their smallest detail at the moment they were brought forth. This doesn't have to do with evolution, but the age of the earth, so I won't go much more into it. I just think it is interesting.
Back to theistic evolution. I think an even bigger problem for evolution is the concept of "sin before death." It is a truth of the faith that, as it says in Romans:
Wherefore as by one man sin entered into this world, and by sin death; and so death passed upon all men, in whom all have sinned (Rom. 5:12, Douay).
Now, let's say we adopt the theistic evolutionary point that the human body has evolved from preexisting material. That "material" presumably means other organic bodies that were born, grew up, and died. Evolution is all about slow change over time as things are born and die. But if evolution produced the first human body(which God then presumably 'ensouled'), doesn't it require that thousands upon thousands of previous sub-human beings were born and died to get to that stage? And if it was the sin of the first man that brought forth death, how could death have been present and active in the world before sin? And if death was already happening before the first man sinned, what was so different about man's punishment after the Fall? That he would die? If his body evolved from preexisting non-human bodies, then there would have already been death for thousands upon thousands of years, and Genesis and Romans clearly say that death came about originally through the sin of Adam.
To put it simply, it is a truth of the faith that death entered the world through sin. Theistic evolution asserts that death entered the world prior to sin. Therefore, theistic evolution is not compatible with the faith.
This is just my opinion. Disagree if you want to.