You should try the Gothic 3 Community Patch. This contains an enormous number of fixes and improvements and has much better compatibility with current hardware. It's a huge download, but if you can spare the bandwidth it's certainly worth trying.

This sucks, Gothic is on sale and I would love to buy it, but because of this issue it wont work on my comp. :(

I bought Gothic 2 Gold without checking to see if it worked with Windows 7. Initially I got a black box and some D3D error. I did what I normally do and set the compatibility to XP SP2. I also checked Disable visual themes, disable desktop composition, disable display scaling on high DPI settings and Run this program as administrator. It worked after that.
I am running Windows 7 64bit, Nvidia 9500gt, AMD Athlon 64 X2 6400+ and 4gb memory.
I don't know if this will help anyone, but it worked for me. It did take about 3 minutes to load, but I played it for about 45 minutes without a problem.

Actually, doing what you did as far as compatibility mode, didn't work for my Nvidia GTX 295 with i7 975 and I'm using Win7 Home Premium (64bit). I have tried the wide screen thing; I've tried all the compatibility tricks including the gothic2.ini advice. So far nothing is helping with the BSD after the flickers and major slow down.
Gothic 2 needs to be removed or only sold as a WinXP compatible ONLY purchase. I wasted a purchase.

It is compatible with Vista/7.... if you aren't an nVidia user. That isn't GoG's fault, it is on nVidias end due to some of the driver changes they made. GoG can't do anything about it.

Yes they can, they can have a warning on the game's page.
I love Gog, but they need a warning of some sort on the games that do not work for large amounts of people. Arx Fatalis and Gothic just to name two that I know of.

so if i plug in an old harddrive and load up vista 32bit will GOthic 2 work with my GTX 275 Nvidia GPU or is it with all modern nvidia drivers, regardless of operating system?

Yes, that would work. This is specific to Windows 7; Vista and XP don't have this problem.
Hopefully Nvidia will fix this soon. :(

Bought Gothic yesterday, thought I'd give it a spin after reading so many positive things about it. Unfortunately, yes the game doesn't work with nvidia gpu's on windows 7. No matter what people try, compatibility modes, disabling stuff/administrator. http://forums.nvidia.com/index.php?showtopic=104636 this is the most active "nvidia, fix gothic and gothic 2 problems" thread at the moment, and still no fix. shame, was really looking forward to playing, and I don't have the time to fix myself with dual boot. Nothing to do but wait.
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Edit, works fine on my netbook :)

Aside from the dual boot option, two other possibilities remain to get around this if Nvidia fail to address the problem:
1/ revert to Vista 100.59 drivers (apparently the last set of drivers which worked - see http://www.gog.com/en/forum/gothic_series/game_crashes_when_going_outside/perm=27/#p_b_27 )
2/ running XP Mode+VMWare VPlayer to emulate XP within Windows 7. However I don't want to have to do this - I only have Windows 7 Home Premium so upgrading to Ultimate to get XP Mode will cost £100+ :-(

I'm not sure about using Win7's XP mode with VMware Player because I only have Home Premium, but VMware Player installs another operating system from it's original CD or an image file. Fortunaltely I still have my copy of XP to load into VMware Player. This is currently the only way I've been able to play Gothic 1 and 2 as my host system is the dreaded Win7/Nvidia combo.
In short, If any of you still have your XP or Vista disks, just download the free VMware Player form http://www.vmware.com/products/player/ and you'll be good to go. Just point VMware Player to your disk and it will install to a virtual computer.

Just an update here. Upgraded to Windows 7 Ultimate so I can try out XP mode. The selling point was that once the games are loaded into The instance of XP, they will appear in your Windows 7 start menu and the programs will appear to launch like native Windows Windows 7 apps. HOWEVER, Windows XP mode doesn't support 3D acceleration and only have a virtual video adapter suited for business apps so I wasted $150 for this upgrade.
The bright side to my experiments in Virtual Machines is that Gothic 1 and 2 work just fine using VMware. The free VMware Player, not the VMware Workstation that you pay money for. I also discovered the free "Virtualbox" by Sun Microsystems. The virtual video adapter in Virtualbox seems to only support 3:4 resolutions unless you set up some sort of remote desktop to the virtual machine, so VMware player works out best for me. Keep in mind that the one caveat to this solution is that you need alot of RAM and a spare copy of Windows XP or Vista. Both of which I have. I have 8gb of RAM and had at least two Virtual Machines running last night when I was testing them out. With that much RAM they ran like native OS's. I also installed KOTOR and It ran fine too. KOTOR is one of those games that crash all the time in Vista and Win 7.

Arrgh! I can't turn the virtualization settings on in my BIOS (to run VMware Player) without switching off my overclock, which I don't really want to do. Also the Vista driver 100.59 I referred to above won't work with my GTX 285. That just leaves me with the dual boot option...
I think I will just sit & hope Nvidia sort this out.

Couldn't get Gothic 2 running in my XP VirtualBox VM so I went and installed Ubuntu Linux via Wubi today - Gothic 2 runs pretty darned good via WINE (with minor caveats: black videos and no music).
Better than nothing I guess :)

Note that you can import the XP Mode virtual machine into VMware Player directly--you don't need another copy of XP.