Ok people, i just submitted this to the support staff but i also wanted to see what you people had to say and if anyone else has had similar issues.

just a few seconds after starting the game everything distorts and the game becomes unplayable. here are some screenshots to show you what i mean. i have the most recent drivers for my card and they work perfectly for every other game i have. (most taken with Xfire.)

1: the menu screen
http://i42.photobucket.com/albums/e312/ace_frozen1/menu.png

2: spaceport after clicking new game
http://i42.photobucket.com/albums/e312/ace_frozen1/gameplay1.png

3: leaving spaceport
http://i42.photobucket.com/albums/e312/ace_frozen1/gameplay2.png

4: cockpit internal view
http://i42.photobucket.com/albums/e312/ace_frozen1/gameplay3.png

For a little more info here is a portion from DxDiag:

------------------
System Information
------------------
Time of this report: 4/28/2012, 03:13:52
Machine name:
Operating System: Windows 7 Home Premium 64-bit (6.1, Build 7601) Service Pack 1 (7601.win7sp1_gdr.120305-1505)
Language: English (Regional Setting: English)
System Manufacturer: Gateway
System Model: NV53
BIOS: Ver 1.00PARTTBL]
Processor: AMD Turion(tm) II Ultra Dual-Core Mobile M620 (2 CPUs), ~2.5GHz
Memory: 4096MB RAM
Available OS Memory: 3838MB RAM
Page File: 1749MB used, 5925MB available
Windows Dir: C:\Windows
DirectX Version: DirectX 11
DX Setup Parameters: Not found
User DPI Setting: Using System DPI
System DPI Setting: 96 DPI (100 percent)
DWM DPI Scaling: Disabled
DxDiag Version: 6.01.7601.17514 64bit Unicode

---------------
Display Devices
---------------
Card name: ATI Mobility Radeon HD 4200 Series
Manufacturer: Advanced Micro Devices, Inc.
Chip type: ATI display adapter (0x9712)
DAC type: Internal DAC(400MHz)
Device Key: Enum\PCI\VEN_1002&DEV_9712&SUBSYS_02921025&REV_00
Display Memory: 1915 MB
Dedicated Memory: 252 MB
Shared Memory: 1663 MB
Current Mode: 1366 x 768 (32 bit) (60Hz)
Monitor Name: Generic PnP Monitor
Monitor Model: unknown
Monitor Id: LGD02DC
Native Mode: 1366 x 768(p) (59.996Hz)
Output Type: Internal
Driver Name: aticfx64.dll,aticfx64.dll,aticfx32,aticfx32,atiumd64.dll,atidxx64.dll,atiumdag,atidxx32,atiumdva,atiumd6a.cap, atitmm64.dll
Driver File Version: 8.17.0010.1124 (English)
Driver Version: 8.961.0.0
DDI Version: 10.1
Driver Model: WDDM 1.1
Driver Attributes: Final Retail
Driver Date/Size: 4/5/2012 21:20:04, 1067520 bytes
WHQL Logo'd: Yes
WHQL Date Stamp:
Device Identifier: {D7B71EE2-D452-11CF-F177-9822BEC2C535}
Vendor ID: 0x1002
Device ID: 0x9712
SubSys ID: 0x02921025
Revision ID: 0x0000
Driver Strong Name: oem10.inf:ATI.Mfg.NTamd64.6.1:ati2mtag_RS880M:8.961.0.0:pci\ven_1002&dev_9712
Rank Of Driver: 00E62001
Video Accel: ModeMPEG2_A ModeMPEG2_C
Deinterlace Caps: {335AA36E-7884-43A4-9C91-7F87FAF3E37E}: Format(In/Out)=(YUY2,YUY2) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY DeinterlaceTech_BOBVerticalStretch
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(YUY2,YUY2) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY
{335AA36E-7884-43A4-9C91-7F87FAF3E37E}: Format(In/Out)=(UYVY,UYVY) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY DeinterlaceTech_BOBVerticalStretch
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(UYVY,UYVY) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(YV12,0x32315659) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{335AA36E-7884-43A4-9C91-7F87FAF3E37E}: Format(In/Out)=(NV12,0x3231564e) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY DeinterlaceTech_BOBVerticalStretch
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(NV12,0x3231564e) Frames(Prev/Fwd/Back)=(0,0,0) Caps=VideoProcess_YUV2RGB VideoProcess_StretchX VideoProcess_StretchY
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(IMC1,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(IMC2,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(IMC3,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(IMC4,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(S340,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
{5A54A0C9-C7EC-4BD9-8EDE-F3C75DC4393B}: Format(In/Out)=(S342,UNKNOWN) Frames(Prev/Fwd/Back)=(0,0,0) Caps=
D3D9 Overlay: Not Supported
DXVA-HD: Not Supported
DDraw Status: Enabled
D3D Status: Enabled
AGP Status: Enabled

Never mind. I figured it out. Apparently the newest drivers available for the ATI Radeon 4200HD (8.9) where causing the issues. i downgraded to 8.6 and now everything works perfectly.

I'm having a similar issue with DS1 not wanting to render anything in 3D. I've done a lot of research & found that the GOG version still doesn't like having apps like Daemon Tools installed.

Quite unforunate that the anti-piracy crap is still built-in.