I have been having this problem with both KOTOR games on my computer, and have never found a solution.
I get slow performance in my game, no matter what I do. I never get more than 20 FPS in all areas of the game. If I set all the options to the lowest they can go, I still get the same crappy framerate as if I set them the highest they can go. I have fiddled and mingled with every option singularly, so know that the solution wont be something like "turn VSNX off". I switched to the Omega drivers, put the atioglxx.dl_ file in the game folder, ran with 4.11 drivers, ran with the latest drivers, and added Disable Vertex Buffer Objects=1 and Enable Truform=0 at the end of the swkotor2.cfg file, and none of those solutions will still fix my crappy framerate. I have a 120 MB Radeon 9200, 1.8 Ghz P4 processor with 640 MBs of Dual-Channel RAM, and even though I get good framerates at games like FarCry and DOOM 3, KOTOR and KOTOR II both perform like crap no matter what I do. It's like its got a 20 FPS cap set or something. I've looked around a bunch of forums, and the only other person who had this problem was a Mac user, and the people who responded didn't have a solution for him.
Thanks for any help you can give.