As Collector said, you probably had a better experience, if you would have tried different output methods. As I told in an earlier post, I get the best results with DDRAW and experience the same sluggish gameplay with OVERLAY.

I've did try this too. I've checked forum first before asking here, saw post about =>ddraw. Tried. Nothing. Just not my day probably.
But whatever, already finished Chapter1 of GK2 =)

What seemed to help me with sound (not completely, but it does seem to stutter only rarely) was changing rate in [mixer] group to 24000 from 22050. My soundcard has native sample rate of 48000 and it had to do nontrivial resampling with 22050, whereas it can play natively with 24000 rate.

Tried Collector's suggestion and it worked like a charm. No more sound problems. Many thanks! :)