i had the "pixel spread" issue in which pixels would "drag" throughout the screen and render gameplay impossible. both lucas arts and obsidian have acknowledged this problem and suggest getting the latest drivers for your ATI card. as far as i can tell, its the most rescent drivers that are causing this problem. so i just re-installed the drivers that came with my card. right now i have version 6.14.10.6360 and haven't had that issue again. had this same issue with kotor 1. but kotor 2 is still really glitchy, won't play it again until a patch comes out.
hope this helps someone.