There is a patch you can download that ficed it for me, I'll see if I can find it OP since I've had the same problem but somehow fixed it twice, forgetting how I did both times.
Ah-hah I have made progress, well there's a few things to try first:
Open swkotor.ini in Notepad:
1) Under the heading [Graphics Options], add the line AllowWindowedMode=1
2) Edit the value FullScreen=0
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[url=http://www.lucasarts.com/support/update/kotor2.html]You could also download the official patches from Lucasart's website[/url]
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[url=http://www.lucasforums.com/showthread.php?t=194296]This thread also boasts fixes for vista/win7 but I don't remember it ever working, if the official patches don't work this might.[/url]
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There are also a couple of other things you could try, but neither of them worked for me. You could try running it in compatibility mode, you might get lucky with that. Or you can try going into the graphics options and disabling things like grass until it works. That's what I had to do to fix KOTOR 1 but I didn't do it for 2 so not sure if any of this helps but best of luck buddy, I know how frustrating it is when a game doesn't work :)
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Thank you, just got back from school and I'm trying to see if it will work. Again, thank you!!!
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Not a problem, juts happy to help. Have you made any progress then?
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Yes the update on LucasArt's website worked for me. I'm now on Telos in the game. Thank you so much I didn't think I would be able to get it to work.
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That's excellent glad you could get to play KOTOR 2 in the end. It's worth the time it took to fix it easily :)